<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997
SECURITIES ACT FILE NO. 33-42939
INVESTMENT COMPANY ACT FILE NO. 811-6420
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 8 [X]
(Check appropriate box or boxes)
------------------
FMB FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
OAKS, PENNSYLVANIA 19456
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
REGISTRANT'S TELEPHONE NUMBER (800) 453-4234
DAVID G. LEE
C/O SEI INVESTMENTS COMPANY
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------
Copies to:
JAMES J. BURNS, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
------------------
It is proposed that this filing will become effective (check appropriate
box):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has elected to register an indefinite number of securities
pursuant to Rule 24f-2 of the Investment Company Act of 1940. Registrant filed a
24f-2 Notice on January 29, 1997 for its fiscal year ended November 30, 1996.
================================================================================
<PAGE> 2
[LOGO]
FMB MONEY MARKET FUND
O
FMB INTERMEDIATE
GOVERNMENT INCOME FUND
O O
FMB MICHIGAN
TAX-FREE BOND FUND
O O
FMB DIVERSIFIED
EQUITY FUND
O O O
Consumer Service Class
PROSPECTUS
March 28, 1997
SEI Financial Services Company
Distributor
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, FIRST MICHIGAN BANK CORPORATION, FMB-TRUST OR ANY
OF THEIR AFFILIATES, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE LOSS
OF PRINCIPAL.
<PAGE> 3
FMB FUNDS, INC.
OAKS, PENNSYLVANIA 19456
800-453-4234
FMB-TRUST
INVESTMENT ADVISER
FIRST MICHIGAN BANK CORPORATION
INVESTMENT SUB-ADVISER
SEI FUND RESOURCES
ADMINISTRATOR
SEI FINANCIAL SERVICES COMPANY
DISTRIBUTOR
This Prospectus describes the "Consumer Service Classes" of four mutual
funds (collectively, the "Funds" and individually, a "Fund"), which are separate
investment portfolios of FMB Funds, Inc. ("FMB Funds" or the "Company"). The
Funds, for which FMB-Trust (the "Adviser") and First Michigan Bank Corporation
(the "Sub-Adviser") serve as investment adviser and investment sub-adviser,
respectively, and which are distributed by SEI Financial Services Company (the
"Distributor") and administered by SEI Fund Resources (the "Administrator"),
are:
- FMB Money Market Fund
- FMB Intermediate Government Income Fund
- FMB Michigan Tax-Free Bond Fund
- FMB Diversified Equity Fund
This Prospectus relates only to the "Consumer Service Class" of each Fund's
shares, and no other class of shares of the Fund is offered hereby. INVESTMENTS
IN THE MONEY MARKET FUND ARE NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES
GOVERNMENT. THE MONEY MARKET FUND ATTEMPTS TO MAINTAIN THE VALUE OF ITS SHARES
AT A CONSTANT $1.00 PER SHARE, ALTHOUGH THERE CAN BE NO ASSURANCE THAT IT WILL
ALWAYS BE ABLE TO DO SO. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR ENDORSED OR GUARANTEED BY, FIRST MICHIGAN BANK CORPORATION, FMB-TRUST OR ANY
OF THEIR AFFILIATES, NOR ARE THEY FEDERALLY INSURED BY THE FDIC, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. THIS PROSPECTUS SETS FORTH CONCISELY THE
INFORMATION A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING IN ANY OF THE
FUNDS. INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE
REFERENCE.
A Statement of Additional Information ("SAI"), dated March 28, 1997
containing additional and more detailed information about the Funds, has been
filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. The SAI is available without
charge and can be obtained by writing or calling the Funds at the address and
telephone number printed above.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
March 28, 1997.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights......................................................... 1
Fund Expenses...................................................... 3
Fee Table.......................................................... 4
Financial Highlights............................................... 5
Investment Policies of the Funds................................... 8
Description of Securities, Investment Practices and Restrictions... 10
Management of the Funds............................................ 18
Fund Share Valuation............................................... 20
Pricing of Fund Shares............................................. 21
Purchase of Fund Shares............................................ 23
Individual Retirement Accounts..................................... 25
Exchange Privileges................................................ 26
Redemption of Fund Shares.......................................... 27
Dividends, Distributions and Federal Income Tax.................... 29
Regulatory Matters................................................. 32
Other Information.................................................. 33
</TABLE>
<PAGE> 5
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
This Prospectus describes the Funds, each of which has its own distinct
investment objectives and policies, which are described and summarized here.
FMB MONEY MARKET FUND. The investment objective of the Money Market Fund
is to provide investors with a high level of current income, consistent with
preservation of capital and liquidity. The Money Market Fund pursues its
objective by investing its assets in a broad range of high quality, short-term,
money market instruments which have remaining maturities not exceeding thirteen
months and by maintaining a dollar-weighted average portfolio maturity of 90
days or less. Money market instruments in which the Money Market Fund may invest
include: securities issued or guaranteed by the U.S. Government, its agencies or
its instrumentalities, bank obligations of certain U.S. and foreign banks,
certain U.S. savings and loan obligations, commercial paper, corporate debt
securities, variable rate demand notes and repurchase agreements. All
investments by the Money Market Fund will be denominated in U.S. dollars. The
Money Market Fund attempts to maintain the value of its shares at a constant
$1.00 per share, although there can be no assurance that the Money Market Fund
will always be able to do so.
FMB INTERMEDIATE GOVERNMENT INCOME FUND. The primary investment objective
of the Intermediate Government Income Fund is to provide investors with a high
level of current income, consistent with prudent risk of capital. Total return,
which includes capital appreciation as well as current income, is a secondary
objective of the Intermediate Government Income Fund. Securities held by the
Intermediate Government Income Fund will include obligations issued or
guaranteed by the U.S. Government, its agencies or its instrumentalities, in the
form of U.S. Treasury bills, notes and bonds which have a dollar-weighted
average maturity not exceeding seven years; and, mortgage-backed securities and
collateralized mortgage obligations which have a dollar-weighted average
maturity not exceeding five years. As a matter of operating policy, under normal
market conditions, the Intermediate Government Income Fund's dollar-weighted
average portfolio maturity will not be less than three years.
FMB MICHIGAN TAX-FREE BOND FUND. The investment objective of the Michigan
Tax-Free Bond Fund is to provide investors with a high level of current income,
exempt from both federal and Michigan personal income taxes, while limiting the
risk of potential capital loss. The Michigan Tax-Free Bond Fund pursues this
objective by investing primarily in debt obligations with short-to-intermediate
remaining maturities (less than 15 years) issued by or on behalf of the State of
Michigan and its political subdivisions, agencies, and instrumentalities or by
other issuers outside the State of Michigan if such obligations pay interest
that, in the opinion of counsel to the issuer, is exempt from federal and
Michigan personal income tax ("Michigan Municipal Obligations"). The Michigan
Tax-Free Bond Fund invests primarily in Michigan Municipal Obligations that
present acceptable credit risks in the judgment of the Adviser and that at the
time of purchase are rated "investment-grade" or better or are unrated but are
determined by the Adviser to be of comparable quality. See Appen-
1
<PAGE> 6
dix A to the SAI for a description of rating categories. The lowest rated
investment-grade securities are deemed to have speculative characteristics. As a
fundamental policy, under normal market conditions, the Michigan Tax-Free Bond
Fund will have at least 80% of its net assets invested in securities the
interest on which is exempt from federal income tax and the federal alternative
minimum tax. As a matter of operating policy, under normal market conditions, at
least 65% of the value of its total assets will be invested in Michigan
Municipal Obligations consisting of bonds, as contrasted with notes or bills.
For temporary defensive purposes, including times when sufficient Michigan
Municipal Obligations may not be available in the marketplace at prices
considered by the Adviser to be acceptable, the Adviser may invest more than 20%
of the Fund's assets in securities that are subject to federal income tax,
Michigan personal income tax or both.
FMB DIVERSIFIED EQUITY FUND. The primary investment objective of the
Diversified Equity Fund is to provide investors with long-term capital
appreciation. Income generation is a secondary objective of the Diversified
Equity Fund. The Diversified Equity Fund pursues these objectives by investing
primarily in common stocks of both domestic and foreign companies. The
Diversified Equity Fund may invest in securities issued by large,
well-established companies, as well as those issued by smaller companies,
subject to a minimum market capitalization of $50 million. There may be some
additional risks associated with investments in smaller companies because their
shares tend to be less liquid than securities of larger companies. Further,
stocks of small companies are generally more sensitive to purchase and sale
transactions and changes in the issuer's financial condition and, therefore, the
prices of such stocks may be more volatile than those of larger company stocks.
---------------------
Each of the Funds is subject to the general risks and considerations
associated with the types of investments it may make, as described above and
under "Description of Securities, Investment Practices and Restrictions" below.
The net asset value of the shares of each of the Funds (other then the Money
Market Fund) can be expected to fluctuate. With respect to the Money Market
Fund, there can be no assurance of maintaining the value of its shares at a
constant $1.00 per share.
MANAGEMENT OF THE FUNDS
FMB-Trust acts as investment adviser and First Michigan Bank Corporation
acts as investment sub-adviser to the Funds. For its services, the Adviser
receives a fee from each Fund at an annual rate that is based on the Fund's
average daily net assets. The Adviser, at no additional expense to the Fund,
remits to the Sub-Adviser a portion of its fee as determined by agreement with
the Sub-Adviser from time to time for the services performed by the Sub-Adviser.
See "Fee Table" and "Management of the Funds" in this Prospectus.
The Distributor distributes the Funds' shares, for which it may receive
certain additional fees. The Administrator provides certain administrative
services to the Funds, for which each Fund pays it a fee at an annual rate based
on the Fund's average daily net assets. See "Management of the Funds -- The
Distributor and Administrator" in this Prospectus.
2
<PAGE> 7
PURCHASE OF SHARES
Shares of the Consumer Service Class of the Funds are offered at net asset
value plus a sales load, where applicable, except for the Money Market Fund
which is offered at net asset value. See "Fund Share Valuation," "Pricing of
Fund Shares" and "Purchase of Fund Shares." Purchases may be made through an
authorized broker or financial institution, including FMB-Brokerage Services,
Inc., an affiliate of the Adviser and Sub-Adviser, by mail or by wire. Purchases
may only be made in cash (except for certain in-kind purchases with acceptable
securities) with a minimum initial investment of $500 (the $500 minimum may be
waived or reduced for certain accounts; the minimum initial purchase is $250 for
Individual Retirement Accounts ("IRAs")). Subsequent investments may be made for
as little as $25.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value. See
"Redemption of Fund Shares" and "Fund Share Valuation." Requests for redemptions
may be placed through an authorized broker or financial institution, including
FMB-Brokerage Services, Inc., an affiliate of the Adviser and Sub-Adviser, by
mail or by telephone. The Funds reserve the right to redeem, upon not less than
30 days' notice, all shares in a Fund account (other than the account of an IRA
investor) which has been reduced by redemptions to a value below $500.
DIVIDENDS AND DISTRIBUTIONS
The Diversified Equity Fund will declare and pay as a dividend
substantially all of its net income quarterly. The other Funds will declare
dividends of substantially all of their net income daily and accrue and pay
those dividends monthly. Any net capital gains of a Fund will be distributed at
least annually. All dividends and distributions will be reinvested automatically
at net asset value in additional shares of the Fund unless cash payment is
requested by a shareholder.
FUND EXPENSES
The following fee table is provided to assist investors in understanding
the various costs and expenses that a shareholder can expect to incur as an
investor in the Consumer Service Class of a Fund.
3
<PAGE> 8
FEE TABLE*
<TABLE>
<CAPTION>
FMB FMB
FMB INTERMEDIATE MICHIGAN FMB
MONEY GOVERNMENT TAX-FREE DIVERSIFIED
MARKET INCOME BOND EQUITY
FUND FUND FUND FUND
------ ------------ -------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on the Purchase of
Shares (as a percentage of offering price)....... 0.00% 4.75% 4.75% 5.75%
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fees (after waiver)**..................... 0.35% 0.45% 0.35% 1.00%
12b-1 Fees (after waivers)+........................ 0.25% 0.25% 0.25% 0.25%
Other Expenses***.................................. 0.33% 0.34% 0.53% 0.41%
----- ---- - ---- - ---- -
Total Fund Operating Expenses (after
waivers)****................................. 0.93% 1.04% 1.13% 1.66%
===== ===== ===== =====
</TABLE>
EXAMPLE: A shareholder would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return***** and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
FMB FMB
FMB INTERMEDIATE MICHIGAN FMB
MONEY GOVERNMENT TAX-FREE DIVERSIFIED
MARKET INCOME BOND EQUITY
FUND FUND FUND FUND
------ ------------ -------- -----------
<S> <C> <C> <C> <C>
1 year............................................. $ 9 $ 58 $ 58 $ 73
3 years............................................ $ 30 $ 79 $ 82 $ 107
5 years............................................ $ 51 $102 $107 $ 143
10 years........................................... $114 $169 $178 $ 243
</TABLE>
- ---------------
* The expense information in the table has been restated to reflect the
elimination of certain waivers which were in effect for the prior year.
** Absent such waiver, Advisory Fees would be 0.55% for the Michigan Tax-Free
Bond Fund.
*** Other Expenses include, but are not limited to, administrative service,
legal, audit, insurance, printing and registration fees.
**** Absent such waivers, Total Fund Operating Expenses would be 1.14% for the
Intermediate Government Income Fund, 1.43% for the Michigan Tax-Free Bond
Fund and 1.76% for the Diversified Equity Fund.
***** The assumed 5% annual return is hypothetical and should not be considered
a representation of past or future annual return; the actual rate of
return may be greater or less than the assumed rate.
+ Absent waivers, 12b-1 Fees would be 0.35%, 0.35% and 0.35%, respectively,
for the Intermediate Government Income Fund, Michigan Tax-Free Bond Fund
and Diversified Equity Fund.
Long-term shareholders in mutual funds with 12b-1 fees such as those
provided for under the Company's Distribution Plan with respect to the Consumer
Service Class of each Fund may pay more than the economic equivalent of the
maximum front-end sales charge permitted by the rules of the National
Association of Securities Dealers, Inc. ("NASD"). The Funds will comply with the
limitations on sales charges imposed by NASD rules.
4
<PAGE> 9
FMB FUNDS, INC.
CONSUMER SERVICE CLASS
The following financial highlights have been audited by Price Waterhouse
LLP, Independent Accountants, whose report on the Financial Statements, which
includes this data, is included in the Company's Annual Report to Shareholders
for the fiscal year ended November 30, 1996, which is incorporated by reference
into the SAI. This information should be read in conjunction with the Financial
Statements and notes thereto which are included in the Annual Report. The Annual
Report may be obtained by shareholders by writing or calling at the address or
telephone number printed on the cover of this Prospectus.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FMB MONEY MARKET FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------ ------ -----
Income from Investment
Operations:
Net investment income....... 0.05 0.05 0.04 0.03 0.04
------- ------- ------ ------ -----
Less dividends from net
investment income........... (0.05) (0.05) (0.04) (0.03) (0.04)
------- ------- ------ ------ -----
Net Asset Value, End of
Period...................... $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ====== ====== =====
Total return (not reflecting
sales load)................. 4.70% 5.28% 3.51% 2.97% 3.67%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................... $19,988 $17,489 $7,154 $1,485 $208
Ratios of Expenses to
Average Net Assets........ 0.86% 0.65% 0.68% 0.32% 0.39%
Ratios of Expenses before
effect of waivers......... 0.93% 0.65% 0.70% 0.68% 1.03%
Ratios of Net Investment
Income to Average Net
Assets.................... 4.61% 5.16% 3.46% 2.91% 3.46%
Ratios of Net Investment
Income to Average Net
Assets before effect of
waivers................... 4.54% 5.16% 3.44% 2.55% 2.82%
- ---------------
* Fund Commenced Operations on
December 2, 1991.
</TABLE>
5
<PAGE> 10
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FMB INTERMEDIATE GOVERNMENT INCOME FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $10.24 $9.66 $10.46 $10.10 $10.00
------ ------ ------ ------------ ------
Income from Investment
Operations:
Net investment income..... 0.57 0.61 0.57 0.59 0.58
Net gain (loss) on
securities (both
realized and
unrealized)............. (0.10) 0.58 (0.80) 0.36 0.10
------ ------ ------ ------------ ------
Total from Investment
Operations.............. 0.47 1.19 (0.23) 0.95 0.68
------ ------ ------ ------------ ------
Less Distributions:
Dividends from net
investment income....... (0.58) (0.61) (0.57) (0.59) (0.58)
------ ------ ------ ------------ ------
Net Asset Value, End of
Period...................... $10.13 $10.24 $9.66 $10.46 $10.10
=========== =========== =========== =========== ===========
Total Return (not reflecting
sales load)................. 4.80% 12.64% (2.23%) 9.60% 6.95%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................. $5,230 $7,610 $9,718 $ 10,872 $5,440
Ratios of Expenses to
Average Net Assets...... 0.95% 0.78% 0.83% 0.50% 0.61%
Ratios of Expenses before
effect of waivers....... 1.14% 0.78% 0.85% 0.78% 1.08%
Ratios of Net Investment
Income to Average Net
Assets.................. 5.73% 6.09% 6.45% 5.66% 5.67%
Ratios of Net Investment
Income to Average Net
Assets before effect of
waivers................. 5.54% 6.09% 6.43% 5.38% 5.20%
Portfolio Turnover Rate... 16% 27% 20% 17% 29%
- ---------------
* Fund Commenced Operations on
December 2, 1991.
</TABLE>
6
<PAGE> 11
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FMB MICHIGAN TAX-FREE BOND FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $10.79 $9.97 $10.61 $10.24 $10.00
------------ ------------ ------------ ------------ ------
Income from Investment
Operations:
Net investment income..... 0.48 0.49 0.47 0.49 0.46
Net gain (loss) on
securities (both
realized and
unrealized)............. 0 0.82 (0.63) 0.37 0.24
------------ ------------ ------------ ------------ ------
Total from Investment
Operations.............. 0.48 1.31 (0.16) 0.86 0.70
------------ ------------ ------------ ------------ ------
Less Distributions:
Dividends from net
investment income....... (0.48) (0.49) (0.47) (0.49) (0.46)
Realized capital gains.... 0 0 (0.01) 0 0
------------ ------------ ------------ ------------ ------
Net Asset Value, End of
Period...................... $10.79 $10.79 $9.97 $10.61 $10.24
=========== =========== =========== =========== ===========
Total Return (not reflecting
sales load)................. 4.61% 13.21% (1.49%) 8.53% 7.17%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................. $ 9,050 $ 12,619 $ 12,249 $ 14,771 $4,572
Ratios of Expenses to
Average Net Assets...... 0.84% 0.70% 0.51% 0.35% 0.46%
Ratios of Expenses before
effect of waivers....... 1.40% 1.18% 1.19% 1.38% 2.72%
Ratios of Net Investment
Income to Average Net
Assets.................. 4.55% 4.62% 4.50% 4.59% 4.50%
Ratio of Net Investment
Income to Average Net
Assets before effect of
waivers................. 4.00% 4.14% 3.82% 3.56% 2.24%
Portfolio Turnover Rate... 16% 35% 22% 13% 30%
- ---------------
* Fund Commenced Operations on
December 2, 1991.
</TABLE>
7
<PAGE> 12
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FMB DIVERSIFIED EQUITY FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $ 14.58 $11.44 $11.37 $11.61 $ 10.00
------- ------ ------ ------ -------
Income from Investment
Operations:
Net investment income....... 0.09 0.12 0.07 0.09 0.10
Net gain (loss) on
securities (both realized
and unrealized)........... 3.17 3.13 0.08 (0.25) 1.60
------- ------ ------ ------ -------
Total from Investment
Operations................ 3.26 3.25 0.15 (0.16) 1.70
------- ------ ------ ------ -------
Less Distributions:
Dividends from net
investment income......... (0.11) (0.11) (0.08) (0.08) (0.09)
------- ------ ------ ------ -------
Net Asset Value, End of
Period...................... $ 17.73 $14.58 $11.44 $11.37 $ 11.61
======= ====== ====== ====== =======
Total Return (not reflecting
sales load)................. 22.44% 28.54% 1.34% (1.40%) 17.16%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................... $ 7,145 $5,833 $4,985 $5,634 $ 3,377
Ratios of Expenses to
Average Net Assets........ 1.58% 1.50% 1.61% 1.50% 1.64%
Ratios of Expenses before
effect of waivers......... 1.76% 1.50% 1.61% 1.53% 2.29%
Ratios of Net Investment
Income to Average Net
Assets.................... 0.57% 0.92% 0.69% 0.82% 0.97%
Ratios of Net Investment
Income to Average Net
Assets before effect of
waivers................... 0.39% 0.92% 0.69% 0.79% 0.32%
Portfolio Turnover Rate..... 9% 20% 49% 22% 5%
Average Commission Rate+.... $ 0.0800
- ---------------
* Fund Commenced Operations on
December 2, 1991.
</TABLE>
+ Average commission rate paid per share of equity security purchases and sales
during the period. Presentation of the rate is only required for fiscal years
beginning after September 1, 1995.
INVESTMENT POLICIES OF THE FUNDS
Each Fund has its own investment objectives, as described earlier in this
Prospectus, which are fundamental. Each Fund also follows its own investment
policies and practices, subject to certain investment restrictions, all as
described further below. The SAI also contains more specific descriptions of
investment restrictions which govern the investments of the Funds.
8
<PAGE> 13
FMB MONEY MARKET FUND. The Money Market Fund, a diversified portfolio,
invests only in U.S. dollar-denominated "Eligible Securities" that the Board of
Directors of the Company, or the Adviser on its behalf, determines present
minimal credit risks and that have remaining maturities not exceeding thirteen
months, as defined in Rule 2a-7 under the Investment Company Act of 1940 (the
"Act"), and maintains a dollar-weighted average portfolio maturity of 90 days or
less. The Money Market Fund will endeavor to maintain a net asset value of $1.00
per share; however, there is no assurance that this objective will be achieved.
The Money Market Fund may invest only in:
(i) securities issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities;
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances, interest bearing demand accounts or other short-term
obligations of U.S. or foreign banks which have more than $500 million in
total assets at the time of investment and, in the case of U.S. banks, are
members of the Federal Reserve System or are examined by the Comptroller of
the Currency, or whose deposits are insured by the FDIC;
(iii) negotiable certificates of deposit and time deposits of U.S.
savings and loan associations that have more than $1 billion in total
assets at the time of investment;
(iv) commercial paper rated at the date of purchase at least A-2 or
its equivalent by a nationally recognized statistical rating organization
(an "NRSRO"), provided that investments in commercial paper in the lowest
of the rating categories described above does not exceed five percent of
total assets and that investments in any single issuer of commercial paper
rated A-2 or its equivalent does not exceed one million dollars or one
percent of the total assets of the Money Market Fund at the time of such
investment; and
(v) repurchase agreements relating to any of the foregoing instruments
which are fully collateralized by the instruments described in (i), above.
FMB INTERMEDIATE GOVERNMENT INCOME FUND. The Intermediate Government
Income Fund, a diversified portfolio, invests primarily in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities in the form
of U.S. Treasury bills, notes and bonds, mortgage-backed securities and
collateralized mortgage obligations. As a fundamental policy, under normal
market conditions, the Intermediate Government Income Fund invests at least 65%
of its assets in such securities. Certain of these securities may be subject to
repurchase agreements and this Fund also may engage in transactions in interest
rate futures contracts and options thereon. For a further description of these
securities and other investment activities, see "Description of Securities,
Investment Practices and Restrictions" herein.
FMB MICHIGAN TAX-FREE BOND FUND. The Michigan Tax-Free Bond Fund, a
non-diversified portfolio, purchases primarily Michigan Municipal Obligations
that, at the time of purchase, are rated investment-grade or better by an NRSRO
or are unrated but are determined by the Adviser to be of comparable quality,
and/or are
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fully collateralized by U.S. Government securities. The Michigan Tax-Free Bond
Fund will have, under normal market conditions, at least 80% of its net assets
invested in securities paying interest that is exempt from federal income tax
and the federal alternative minimum tax, with at least 65% of the value of its
total assets invested in Michigan Municipal Obligations consisting of bonds, as
contrasted with notes or bills. The remaining assets of this Fund may be
invested in bank obligations, commercial paper, corporate debt securities,
mortgage-related securities and other asset-backed securities.
FMB DIVERSIFIED EQUITY FUND. The Diversified Equity Fund, a diversified
portfolio, may invest in a broad range of common stocks of both domestic and
foreign issuers. The Adviser also may invest in other securities in addition to
common stock, such as preferred stocks, debt securities convertible into common
stocks and warrants or other rights to acquire common stocks. The Diversified
Equity Fund will not invest more than 5% of its net assets in warrants,
including no more than 2% of its net assets in warrants that are not listed on
the New York or American Stock Exchanges. Under normal market conditions, the
Diversified Equity Fund will invest at least 65% of its total assets in common
stocks or securities convertible into common stocks. The Diversified Equity Fund
may also invest in American Depositary Receipts ("ADRs"), as described below in
"Description of Securities, Investment Practices and Restrictions -- Investment
in Foreign Securities." For temporary defensive purposes and to meet anticipated
liquidity needs, the Diversified Equity Fund may invest in U.S. Government
securities, certificates of deposit, bankers' acceptances, commercial paper,
repurchase agreements fully collateralized by U.S. Government securities
(maturing in seven days or less) and debt obligations of corporations (corporate
bonds, debentures, notes and other similar corporate debt instruments) which are
rated investment-grade or better by an NRSRO.
The following Section describes in greater detail different types of
securities, investment practices and restrictions of the various Funds.
DESCRIPTION OF SECURITIES, INVESTMENT
PRACTICES AND RESTRICTIONS
U.S. GOVERNMENT SECURITIES (All Funds). U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Treasury bills, which have maturities of up to one year,
notes, which have maturities ranging from one year to 10 years, and bonds, which
have maturities of 10 to 30 years, are direct obligations of the United States.
Other U.S. Government securities include debt securities issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies and
instrumentalities. Some types of U.S. Government securities are supported by the
full faith and credit of the United States or U.S. Treasury guarantees, such as
mortgage-backed certificates guaranteed by the Government National Mortgage
Association ("GNMA"). Other types of U.S. Government securities, such as
obligations of the Student Loan Marketing Association, provide recourse only to
the credit of the agency or instrumen-
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tality issuing the obligation. In the case of obligations not backed by the full
faith and credit of the United States, the investor must look to the agency
issuing or guaranteeing the obligation for ultimate repayment.
MICHIGAN MUNICIPAL OBLIGATIONS (FMB Michigan Tax-Free Bond Fund only). The
municipal obligations which the Michigan Tax-Free Bond Fund may purchase include
fixed and floating rate and variable rate municipal obligations, participation
interests in municipal bonds, tax-exempt commercial paper, short-term municipal
notes, and stand-by commitments. The Michigan Tax-Free Bond Fund will only
purchase Michigan Municipal Obligations that, at the time of purchase, are rated
investment-grade or better by an NRSRO or are unrated but are determined by the
Adviser to be of comparable quality, and/or are fully collateralized by U.S.
Government securities. The Michigan Tax-Free Bond Fund's concentration in
investments in Michigan Municipal Obligations will subject the Fund to greater
risk with respect to its portfolio securities than an investment company that is
permitted to invest in a broader range of investments, because changes in the
financial condition or market assessment of issuers of Michigan Municipal
Obligations generally may cause substantial fluctuations in the Fund's yield and
price of Fund shares. Also, political or economic developments that affect one
such security might affect the other securities. See "Special Factors Affecting
the Michigan Tax-Free Bond Fund" in the SAI.
BANK AND SAVINGS AND LOAN OBLIGATIONS (All Funds except FMB Intermediate
Government Income Fund). These obligations include negotiable certificates of
deposit, fixed time deposits, bankers' acceptances, and interest bearing demand
accounts. The Funds limit their bank investments to dollar-denominated
obligations of U.S., Canadian, Asian or European banks which have more than $500
million in total assets at the time of investment or of United States savings
and loan associations which have more than $1 billion in total assets at the
time of investment and, in the case of U.S. banks, are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the FDIC.
COMMERCIAL PAPER (All Funds except FMB Intermediate Government Income
Fund). Commercial paper includes short-term unsecured promissory notes, and
variable floating rate demand notes issued by domestic and foreign bank holding
companies, corporations and financial institutions as well as similar taxable
and tax-exempt instruments issued by government agencies and instrumentalities.
The Money Market Fund purchases only commercial paper that is rated at the time
of purchase at least A-2 or its equivalent by an NRSRO, and is deemed to present
minimal credit risks. The Money Market Fund limits its purchases of commercial
paper in the lowest of the rating categories described above to five percent of
its total assets. The Money Market Fund also limits its investment in any single
issuer of commercial paper rated A-2 or its equivalent to the greater of one
million dollars or one percent of the total assets of the Money Market Fund at
the time of investment in such commercial paper.
REPURCHASE AGREEMENTS (All Funds). Securities held by the Funds may be
subject to repurchase agreements. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of the sale to
repurchase that security from the purchaser (a Fund) at a mutually agreed upon
time and price. For certain
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purposes, these agreements may be considered to be loans by the purchaser (a
Fund) collateralized by the underlying securities. These agreements will be
fully collateralized and the collateral will be marked-to-market daily. The
Funds will enter into repurchase agreements only with dealers, domestic banks or
recognized financial institutions which, in the opinion of the Adviser, present
minimal credit risks in accordance with guidelines approved by the Board of
Directors of the Company (the "Board of Directors"). While the maturity of the
securities underlying a repurchase agreement transaction may be more than one
year, the term of the repurchase agreement generally will be seven days or less.
A repurchase agreement with a maturity of more than seven days will be treated
as an illiquid security for the purposes described below (under "Illiquid or
Restricted Investments"). In the event of default by the seller under a
repurchase agreement, a Fund could experience losses that include (i) possible
decline in the value of the underlying security during the period while the Fund
seeks to enforce its rights thereto; (ii) additional expenses to the Fund for
enforcing those rights; (iii) possible loss of all or part of the income or
proceeds of the repurchase agreement, and (iv) possible delay in the disposition
of the underlying security pending court action or possible loss of rights in
such securities.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES (All Funds except
FMB Intermediate Government Income Fund). The Funds may, from time to time, buy
variable or floating rate demand notes issued by corporations, bank holding
companies and financial institutions and similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. These
securities typically will have a nominal maturity of over one year but will give
the holder the right to "put" the securities to a remarketing agent or other
entity at designated time intervals and on specified notice. The obligation of
the issuer of the put to repurchase the securities may be backed by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Generally, the remarketing
agent will adjust the interest rate every seven days (or at other specified
intervals) in order to maintain the interest rate at the prevailing rate for
securities with a seven-day or other designated maturity. The Money Market Fund
will only purchase demand instruments which provide that the Fund may receive
the principal amount of the note on seven or fewer days notice.
The Funds also may buy variable rate master demand notes. The terms of
these obligations permit a Fund to invest fluctuating amounts at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between the Fund and
borrower, it is not generally contemplated that they will be traded, and there
is no secondary market for them, although they are redeemable (and, thus,
immediately repayable by the borrower) at principal amount, plus accrued
interest, at any time. In connection with any such purchase and on an ongoing
basis, the Adviser will consider the earning power, cash flow and other
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<PAGE> 17
liquidity ratios of the issuer, and its ability to pay principal and interest on
demand, including situations in which all holders of such notes make demand
simultaneously. While master demand notes, as such, are not typically rated by
NRSROs, if not so rated, a Fund may, under its minimum rating standards, invest
in them only if, at the time of an investment, the issuer meets the criteria set
forth in this Prospectus for commercial paper obligations.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES (FMB Michigan Tax-Free Bond
Fund only). The Michigan Tax-Free Bond Fund may purchase when-issued securities
and make contracts to purchase securities for a fixed price at a future date
beyond customary settlement time ("forward commitments") if the Fund holds, and
maintains until the settlement date in a segregated account, cash, U.S.
Government securities or high-grade debt obligations in an amount sufficient to
meet the purchase price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. Purchasing securities on a when-issued
basis and forward commitments involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of the Michigan Tax-Free Bond Fund's
other assets. No income accrues on securities purchased on a when-issued basis
prior to the time delivery of the securities is made, although a Fund may earn
income on securities it has deposited in the segregated account. The Michigan
Tax-Free Bond Fund does not pay for when-issued securities until they are
delivered. Although it would generally purchase securities on a when-issued
basis or enter into forward commitments with the intention of actually acquiring
securities, the Michigan Tax-Free Bond Fund may dispose of a when-issued
security or forward commitment prior to settlement, if the Adviser deems it
appropriate to do so, and may realize short-term profits or losses upon such a
sale.
MORTGAGE-RELATED SECURITIES (FMB Intermediate Government Income Fund
only). Mortgage pass-through securities are securities representing interests
in "pools" of mortgages in which payments of both interest and principal on the
securities are made monthly, in effect, "passing through" monthly payments made
by the individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose the Fund to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of mortgaged-related securities
generally will decline; however, when interest rates decline, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities. In recognition of this prepayment risk to
investors, the Public Securities Association (the "PSA") has standardized the
method of measuring the rate of mortgage loan principal prepayments. The PSA
formula, the Constant Prepayment Rate (the "CPR") or other similar models that
are standard in the industry will be used by the Fund in calculating maturity
for purposes of its investment in mortgage-related securities.
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<PAGE> 18
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), which are supported only by the discretionary authority of the U.S.
Government to purchase the agency's obligations). Mortgage pass-through
securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported by various forms of
insurance or guarantees issued by governmental entities.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, monthly. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured in multiple
classes, with each class bearing a different stated maturity or interest rate.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
INVESTMENT IN FOREIGN SECURITIES (FMB Diversified Equity Fund and FMB Money
Market Fund only). The Diversified Equity Fund and the Money Market Fund may
invest in securities of foreign private issuers that are denominated in and pay
interest in U.S. dollars. In addition, the Diversified Equity Fund may invest in
ADRs. ADRs are receipts issued by U.S. banks or trust companies in respect of
securities of foreign issuers held on deposit for use in the U.S. securities
markets. The Diversified Equity Fund treats ADRs as interests in the underlying
securities for purposes of its investment policies.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
interest may be withheld at the source under foreign income tax laws, and there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries. Investments in ADRs are
subject to some, but not all, of the foregoing risks.
OPTIONS ON SECURITIES AND INDICES OF SECURITIES (FMB Intermediate
Government Income Fund and FMB Diversified Equity Fund only). The FMB
Intermediate Government Income Fund and the FMB Diversified Equity Fund may
purchase and write (i.e., sell) call options ("calls") and put options ("puts")
on securities and indices of securities. In the case of the FMB Intermediate
Government Income Fund,
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such options will only involve debt securities and indices of debt securities;
in the case of the FMB Diversified Equity Fund, such options will only involve
common stocks and indices of common stocks.
When a Fund purchases an option, it pays a premium in return for the right
to buy (in the case of a call) or sell (in the case of a put) the underlying
security or index at the exercise price at any time during the option period
(usually not more than nine months in the case of common stock or fifteen months
in the case of debt securities). If an option is not exercised or sold, it will
become worthless on its expiration date. If an option is purchased and becomes
worthless on its expiration date, the Fund will have lost the premium, which
will result in a reduction in the Fund's net asset value or total return.
When a Fund writes an option, it receives a premium and gives the purchaser
the right to buy (in the case of a call) or sell (in the case of a put) the
underlying security or index at any time during the option period at a fixed
exercise price, regardless of market price changes during the option period. If
a call written by a Fund is exercised, the Fund forgoes any gain from an
increase in the market price of the underlying security or index over the
exercise price; if a put written by a Fund is exercised, the Fund may be
required to buy the underlying security or index at a disadvantageous price
above the market price.
Any option written by a Fund will be "covered" throughout the life of the
option. A call is "covered" if the Fund (i) owns the optioned securities, (ii)
maintains in a segregated account with the Fund's custodian, cash, cash
equivalents, U.S. Government securities or other high grade debt securities with
a value sufficient to enable the Fund to purchase the optioned securities or
index or (iii) owns an offsetting call option. A put is "covered" if the Fund
(i) maintains in a segregated account with the Fund's custodian, cash, cash
equivalents, U.S. Government securities or other high grade debt securities with
a value equal to the exercise price of the put or (ii) owns an offsetting put
option.
Options on securities generally settle by physical delivery of the
underlying security. Frequently, rather than taking or making delivery of the
underlying security through the process of exercising the option, options are
closed by entering into offsetting purchase or sale transactions that do not
result in ownership of the new option. Index options are generally cash settled
for the net amount, if any, by which the option is "in-the-money" (that is, the
amount by which the value of the underlying securities exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option)
at the time the option is exercised.
A Fund will realize a gain (or loss) on a closing purchase transaction with
respect to an option previously written by the Fund if the premium, plus
commission costs, paid to purchase the option is less (or greater) than the
premium, less commission costs, received on the sale of the option. A gain also
will be realized if an option which the Fund has written lapses unexercised,
because the Fund would retain the premium.
There can be no assurance that a liquid secondary market will exist at a
given time for any particular option.
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FUTURES CONTRACTS (FMB Intermediate Government Income Fund and FMB
Diversified Equity Fund only). The Intermediate Government Income Fund may
purchase and sell interest rate futures contracts and options thereon as a hedge
against changes in interest rates, provided that not more than 5% of the Fund's
net assets are committed to such contracts and options thereon for purposes
other than bona fide hedging. See the SAI for further information about interest
rate futures contracts and options thereon.
The Diversified Equity Fund may enter into stock index futures contracts
and options thereon, in order to protect the value of its common stock
investments, provided that not more than 5% of the Fund's assets are committed
to such contracts and options thereon for purposes other than bona fide hedging.
See the SAI for further information about stock index futures contracts and
options thereon.
UNRATED INVESTMENTS (All Funds). Each Fund may purchase instruments that
are not rated if such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund and, in the
case of the Money Market Fund, if they are purchased in accordance with the
respective Fund's procedures adopted by the Company's Board of Directors in
accordance with Rule 2a-7 under the Act.
FIXED INCOME SECURITIES (All Funds). The FMB Money Market Fund, the
Intermediate Government Income Fund and the Michigan Tax-Free Bond Fund will
invest primarily in fixed income securities. As interest rates increase, the
value of the fixed income securities held by a Fund tends to decrease. This
effect will be more pronounced with respect to investments by a Fund in
mortgage-related securities, the value of which are more sensitive to interest
rate changes, as well as with respect to investments in fixed income securities
with longer maturities.
LOANS OF PORTFOLIO SECURITIES (All Funds except FMB Intermediate Government
Income Fund). To increase current income, each Fund may lend portfolio
securities comprising up to 5% of the Fund's total assets to brokers, dealers
and financial institutions, provided certain conditions are met, including the
condition that each loan is secured continuously by collateral maintained on a
daily marked-to-market basis in an amount at least equal to the current market
value of the securities loaned. For further information about portfolio security
lending, see the SAI.
BORROWING AND LENDING POLICIES (All Funds). As a matter of fundamental
policy, (i) no Fund may borrow money or pledge or mortgage its assets, except
that a Fund may borrow from banks up to 10% of the current value of its total
net assets for temporary or emergency purposes and those borrowings may be
secured by the pledge of not more than 15% of the current value of its total net
assets (but investments may not be purchased by a Fund while any such borrowings
are outstanding), and (ii) no Fund may make loans, except loans of portfolio
securities and except that a Fund may enter into repurchase agreements with
respect to its portfolio securities and may purchase the types of debt
instruments described in this Prospectus.
ILLIQUID OR RESTRICTED INVESTMENTS (All Funds). The Funds may purchase
securities for which there is a limited trading market or which are subject to
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<PAGE> 21
restrictions on resale to the public. It is the policy of each Fund that
illiquid securities (including repurchase agreements of more than seven days'
duration, variable and floating rate demand and master demand notes not
requiring receipt of the principal note amount on seven days' notice or less,
securities of foreign issuers that are not listed on a recognized domestic or
foreign securities exchange and restricted securities which are determined to be
"illiquid") may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund in which they are held. Each Fund may
purchase certain restricted securities ("Rule 144A Securities") for which there
may be a secondary market of qualified institutional buyers as contemplated by
recently adopted Rule 144A under the Securities Act of 1933. Rule 144A is a
recent development and there is no assurance that a liquid market in Rule 144A
Securities will develop or be maintained. To the extent that the number of
qualified institutional buyers is reduced, a previously liquid Rule 144A
Security may be determined to be illiquid, thus increasing the percentage of
illiquid assets in a Fund's portfolio.
OTHER MUTUAL FUNDS (All Funds). Each of the Funds may invest in shares of
other open-end, management investment companies, subject to the limitations of
the Act and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment, provided that any
such purchases will be limited to short-term investments in shares of
unaffiliated investment companies and the Adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition.
DIVERSIFICATION AND CONCENTRATION POLICIES (All Funds). Each Fund (except
the Michigan Tax-Free Bond Fund) is a diversified fund. As such, each such Fund
will not, with respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer (except for U.S. Government
securities) or purchase more than 10% of the outstanding voting securities of
any such issuer. The Money Market Fund may be subject to additional
diversification obligations pursuant to Rule 2a-7 under the Act. The Michigan
Tax-Free Bond Fund is non-diversified.
Also, each Fund will not invest more than 25% of its total assets in the
securities of any one industry, excluding the Money Market Fund which may invest
more than 25% of its total assets in instruments issued by domestic banks. For
this purpose, U.S. Government securities (and repurchase agreements related
thereto) and Michigan Municipal Obligations are not considered securities of a
single industry.
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MANAGEMENT OF THE FUNDS
THE DIRECTORS AND OFFICERS. The business and affairs of each Fund are
managed under the direction of the Board of Directors. Additional information
about the Directors, as well as the Funds' executive officers, is set forth in
the SAI under the heading "Management."
THE ADVISER AND SUB-ADVISER. The Adviser, FMB-Trust, is a wholly owned
subsidiary of the Sub-Adviser, First Michigan Bank Corporation (together with
FMB-Trust, "FMB"). As of November 30, 1996, the Adviser, together with its
affiliates, was providing investment services, through its portfolio managers,
with respect to trust and bank assets in excess of $2 billion.
The Investment Management group at FMB is led by Mr. Stanley P. Roberts,
Senior Vice President and Director of Investments, with over twenty years of
investment management experience with FMB. Mr. Duane C. Carpenter, Senior
Portfolio Manager, with nine years of investment management experience at FMB,
has been primarily responsible for the day-to-day management of the FMB Money
Market Fund since November 1993 and the FMB Intermediate Government Income Fund
since its inception. Mr. Daniel S. VanTimmeren, Assistant Vice President and
Senior Portfolio Manager, with twelve years of investment management experience
with FMB, has been primarily responsible for the day-to-day management of the
FMB Michigan Tax-Free Bond Fund since inception and the FMB Diversified Equity
Fund since November 1993.
Pursuant to an Advisory Agreement, the Adviser manages the investment of
the assets of the Funds and continuously reviews, supervises and administers the
Funds' investments. The Adviser is responsible for placing orders for the
purchase and sale of the Funds' investments directly with brokers and dealers
that are selected by it in its discretion. Pursuant to a Sub-Advisory Agreement
and subject to the supervision of the Adviser, the Sub-Adviser monitors approved
lists of broker-dealers, repurchase dealers and commercial paper issuers,
obtains and analyzes performance and market pricing information, and performs
such other services as delegated to it by the Adviser from time to time.
For the advisory services it provides to the Money Market Fund, the Adviser
is entitled to receive fees at annual rates of 0.35% of the first $500 million
of average net assets, 0.30% of the next $500 million of such assets, and 0.25%
of such assets in excess of $1 billion. For the advisory services it provides to
the other Funds, the Adviser is entitled to receive fees at annual rates of
0.45% of the average daily net assets in the Intermediate Government Income
Fund, 0.55% of the average daily net assets in the Michigan Tax-Free Bond Fund,
and 1.00% of the average daily net assets in the Diversified Equity Fund. Such
fees are payable monthly. Pursuant to the Sub-Advisory Agreement, the Adviser,
at no additional expense to the Fund, remits a portion of its fee as determined
by agreement with the Sub-Adviser from time to time for the services provided by
the Sub-Adviser.
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Purchase and sale orders of the portfolio securities held by each Fund may
be combined with those of other accounts that the Adviser manages or advises,
and for which it has brokerage placement authority, in the interest of seeking
the most favorable overall net results. When the Adviser determines that a
particular security should be bought or sold for a Fund and other accounts
managed by the Adviser, the Adviser undertakes to allocate those transactions
among the participants equitably.
THE DISTRIBUTOR AND ADMINISTRATOR. Pursuant to a Distribution Agreement,
the Distributor, whose address is Oaks, Pennsylvania 19456, acts as distributor
of the Funds. The Distributor is a wholly-owned subsidiary of SEI Investments
Company ("SEI"), a leading provider of investment services to banks,
institutional investors, investment advisers and insurance companies.
Under the Distribution Plan (the "Plan") adopted by the Company with
respect to the Consumer Service Class of each Fund, each Fund may reimburse the
Distributor monthly (subject to a limit of 0.35% per annum of each Fund's
Consumer Service Class average daily net assets, except in the case of the Money
Market Fund in which case the limit shall be 0.25% per annum of those Funds'
Consumer Service Class's average daily net assets) for costs and expenses of the
Distributor in connection with the distribution of Fund shares of the Consumer
Service Classes. These costs and expenses include (i) advertising by radio,
television, newspapers, magazines, brochures, sales literature, direct mail or
any other form of advertising, (ii) expenses of sales employees or agents of the
Distributor, including salary, commissions, travel and related expenses, (iii)
payments to broker-dealers and financial institutions for services in connection
with the distribution of shares, including promotional incentives and fees
calculated with reference to the average daily net asset value of shares of the
Consumer Service Classes held by shareholders who have a brokerage or other
service relationship with the broker-dealer or other institution receiving such
fees, (iv) costs of printing prospectuses and other materials to be given or
sent to prospective investors and (v) such other similar services as the Board
of Directors determines to be reasonably calculated to result in the sale of
shares of the Consumer Service Classes of the Funds. Each Fund's Consumer
Service Class will pay all costs and expenses in connection with the
preparation, printing and distribution of its Prospectus to current shareholders
and the operation of its Plan, including related legal and accounting fees. No
Fund's Consumer Service Class will be liable for distribution expenditures made
by the Distributor in any given year in excess of the maximum amount payable
under the Plan for that Fund in that year.
The Company has entered into an Administration Agreement with the
Administrator pursuant to which the Administrator, a wholly-owned subsidiary of
SEI, provides certain administrative services, other than investment advisory
services, necessary for each Fund's operations, including all regulatory
reporting, accounting services and all necessary office space, equipment,
personnel and facilities. For these services, the Administrator receives from
each Fund a fee, payable monthly, at a maximum annual rate of 0.20% of each
Fund's average daily net assets. The Administrator also serves as transfer agent
for the Company.
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<PAGE> 24
---------------------
Each Fund bears all costs of its operations other than expenses
specifically assumed by the Distributor, the Adviser, the Sub-Adviser or the
Administrator. The costs borne by the Funds include legal and accounting
expenses, Directors' fees and expenses, insurance premiums, custodian and
transfer agent fees and expenses, expenses incurred in acquiring or disposing of
the portfolio securities of a Fund, expenses of registering and qualifying the
shares of the Funds for sale with the SEC and with various state securities
commissions, expenses of obtaining quotations on the Funds' portfolio securities
and pricing of the Funds' shares, expenses of maintaining the Funds' legal
existence, and of shareholders' meetings, and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses. Each
Fund bears its own expenses associated with its establishment as a series; these
expenses have been amortized over a five-year period from the commencement of a
Fund's operations. See "Management" in the SAI. Fund expenses directly
attributable to a Fund are charged to that Fund. All other expenses are
allocated appropriately among all the Funds in the Fund group in relation to the
net assets of each Fund or as is otherwise determined to be fair and equitable
by the Board of Directors.
FUND SHARE VALUATION
The net asset value per share is calculated as of 12:00 noon (New York
time) for the Money Market Fund and as of the close of regular trading on the
New York Stock Exchange (which is currently 4:00 p.m. (New York time)) for the
other three Funds, Monday through Friday, except for the following business
holidays with respect to all of the Funds: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and the following additional business holidays with respect to the
Money Market Fund: Martin Luther King's Birthday, Lincoln's Birthday, Columbus
Day and Veteran's Day.
The net asset value per share of the Intermediate Government Income Fund,
the Michigan Tax-Free Bond Fund and the Diversified Equity Fund is computed by
dividing the value of its net assets attributed to a class of shares by the
total number of the Funds' outstanding shares for that class. All expenses,
including fees paid to the Adviser, Distributor and the Administrator, are
accrued daily and taken into account for the purpose of determining the net
asset value. In calculating net asset value, each such Fund's portfolio
securities will be valued at market value where there is a reliable market
quotation available for the securities and otherwise at fair value as determined
by or under the direction of the Company's Board of Directors. The Funds may
determine the market value of individual portfolio securities by using prices
provided by one or more professional independent pricing services to determine
reliable market quotations for securities held by a Fund. See the SAI for a more
complete description of these Funds' valuation methods. The Money Market Fund
uses the amortized cost method to value their portfolio securities and seek to
maintain a constant net asset value of $1.00 per share, although there can be no
assurance that this objective can be achieved. The amortized cost method
involves valuing a security at its cost and
20
<PAGE> 25
amortizing any discount or premium over the period until maturity, regardless of
the impact of fluctuating interest rates on the market value of the security.
See the SAI for a more complete description of the amortized cost method.
PRICING OF FUND SHARES
Orders for purchases of shares of the Consumer Service Classes will be
executed at the net asset value per share plus any applicable sales load (the
"Public Offering Price") next determined after an order has become effective.
There are no sales loads charged on purchases of shares of the Money Market
Fund. Sales loads relating to the Consumer Service Classes of the other three
Funds (the "Load Funds") are as follows:
FMB INTERMEDIATE GOVERNMENT INCOME FUND AND
FMB MICHIGAN TAX-FREE BOND FUND
<TABLE>
<CAPTION>
SALES LOAD AS A AMOUNT OF SALES
PERCENTAGE OF LOAD REALLOWED
-------------------- TO DEALERS AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF INVESTMENT PRICE INVESTED PRICE
----------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Under $50,000...................... 4.75% 5.04% 4.25%
$50,000 to $99,999................. 4.50% 4.71% 4.00%
$100,000 to $249,999............... 3.50% 3.63% 3.00%
$250,000 to $499,999............... 2.50% 2.56% 2.25%
$500,000 to $999,999............... 2.00% 2.04% 1.75%
Over $1,000,000.................... 1.00% 1.01% 0.85%
</TABLE>
FMB DIVERSIFIED EQUITY FUND
<TABLE>
<CAPTION>
SALES LOAD AS A AMOUNT OF SALES
PERCENTAGE OF LOAD REALLOWED
-------------------- TO DEALERS AS
PUBLIC NET A PERCENTAGE OF
OFFERING AMOUNT PUBLIC OFFERING
AMOUNT OF INVESTMENT PRICE INVESTED PRICE
----------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Under $50,000...................... 5.75% 6.10% 5.00%
$50,000 to $99,999................. 4.50% 4.71% 3.75%
$100,000 to $249,999............... 3.50% 3.63% 2.75%
$250,000 to $499,999............... 2.50% 2.56% 2.00%
$500,000 to $999,999............... 2.00% 2.04% 1.75%
Over $1,000,000.................... 1.00% 1.01% 0.85%
</TABLE>
The Distributor reserves the right to change the amount of the sales load
reallowed to dealers as a percentage of public offering price from time to time,
and at times the Distributor may reallow the entire sales load to such dealers.
In such circumstances, dealers may be deemed to be "underwriters" as that term
is defined in the Securities Act of 1933.
The sales loads shown above will not apply to shares purchased by (i)
trust, investment management and other accounts managed or administered by the
Adviser
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<PAGE> 26
pursuant to a written management or administration agreement, (ii) any person
purchasing shares with the proceeds of a redemption from any registered open-end
management investment company (other than another Fund) which assesses a front-
end sales charge, (iii) the Distributor or any of its affiliates, (iv) Directors
or officers of the Company, (v) directors or officers of the Distributor, the
Adviser, the Sub-Adviser or their affiliates or full-time employees of any of
the foregoing who have been so employed for not less than 90 days (including
members of their immediate families and their retirement plans or accounts),
provided the Adviser, Sub-Adviser, Distributor or affiliate, as the case may be,
agrees to permit such purchases at net asset value, or (vi) representatives of
selling brokers purchasing shares for themselves or for members of their
immediate families. Any person entitled to receive compensation for selling or
servicing shares may receive different compensation with respect to one class of
shares over another.
QUANTITY DISCOUNTS IN SALES LOADS -- CUMULATIVE DISCOUNT PROGRAM
RIGHT OF ACCUMULATION. The reduced sales loads applicable to single
purchases of shares may also be applied to subsequent purchases of shares of the
Load Funds. Under the Right of Accumulation, the dollar amount of a purchase is
added to the net asset value of any other shares of the Load Funds owned at the
time by the investor. The sales load applied to the shares being purchased will
then be calculated at the rate applicable to the aggregate shares of the Load
Funds then owned. For example, if the investor held shares of a Load Fund valued
at $90,000 and purchased an additional $20,000 of Load Fund shares (totalling a
current account value of $110,000), the sales load for the $20,000 purchase
would be at the next lower sales load on the schedule (i.e., the sales load for
purchases of $100,000 but less than $250,000). There can be no assurance that
investors will receive the cumulative discounts to which they may be entitled
unless, at the time of placing their purchase order, the investors or their
authorized brokers or financial institutions make a request for the discount.
The cumulative discount program may be amended or terminated at any time. This
particular privilege does not entitle the investor to any adjustment in the
sales load paid previously on purchases of shares of the Funds. If the investor
knows that he or she will be making additional purchases of shares in the
future, the investor may wish to consider executing a Letter of Intent as
described below.
LETTER OF INTENT. The schedule of reduced sales loads is also available to
investors who enter into a written Letter of Intent providing for the purchase,
within a thirteen-month period, of shares of a Load Fund. Shares of a Load Fund
previously purchased during a 90-day period prior to the date of receipt by the
Distributor of the Letter of Intent which are still owned by the shareholder may
also be included in determining the applicable reduction, at the net asset value
as of the time the Letter of Intent is executed, provided the shareholder or the
dealer notifies the Distributor of such prior purchases.
A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales commission
applicable to the
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<PAGE> 27
amount represented by the goal. The initial purchase under a Letter of Intent
must equal at least 5% of the stated investment goal.
The Letter of Intent does not obligate the investor to purchase, or a Fund
to sell, the indicated amount. In the event the Letter of Intent goal is not
achieved within the thirteen-month period, the investor is required to pay the
difference between the sales loads otherwise applicable to the purchases made
during this period and sales loads actually paid. At any time while a Letter of
Intent is in effect, a shareholder may, by written notice to the Distributor,
increase the amount of the stated goal. In that event, shares of a Load Fund
purchased during the previous 90-day period and still owned by the shareholder
will be included, at net asset value, in determining the applicable sales load
reduction. Investors electing to purchase Fund shares pursuant to a Letter of
Intent should carefully read the application for Letter of Intent which is
available from the Distributor.
PURCHASE OF FUND SHARES
All monies received by the Funds, net of any applicable sales loads, are
invested in full and fractional shares of the appropriate Fund. Certificates for
shares are not issued. The Company maintains records of each shareholder's
holdings of Fund shares, and each shareholder receives a statement confirming
transactions and dividends. The Company reserves the right to reject any
purchase order.
MINIMUM PURCHASE REQUIREMENTS. The minimum initial investment in a Fund is
$500, except that, when the investment is for an IRA, the minimum investment is
$250. Subsequent investments must be at least $25. All initial investments
should be accompanied by a completed Purchase Application, a form of which
accompanies this Prospectus. A separate application is required for IRA
investments. The Company and the Distributor reserve the right to waive or
reduce the minimum initial investment amount with respect to certain accounts.
An investment may be made by using any of the following methods:
BY MAIL. Shares are available for purchase by new and existing
shareholders through the mail by forwarding a completed Purchase Application, in
the case of new shareholders, or a check with the proper account information in
the case of existing shareholders, along with a check to FMB Funds, Inc., P.O.
Box 8526, Boston, Massachusetts 02266-8526.
THROUGH AN AUTHORIZED BROKER OR FINANCIAL INSTITUTION. Shares are
available to new and existing shareholders through an authorized broker or
financial institution such as FMB-Brokerage Services, Inc., an affiliate of the
Adviser and the Sub-Adviser, which has entered into a Selling Group Agreement
with the Fund's Distributor. To make an investment using this method, simply
complete a Purchase Application and contact your authorized broker or financial
institution with instructions as to the amount you wish to invest. Your
authorized broker or financial institution will then contact the Distributor to
place the order on your behalf on that day.
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<PAGE> 28
Completed Purchase Applications received by your authorized broker or
financial institution for the Funds (other than the Money Market Fund) prior to
the determination of net asset value and transmitted to the Distributor prior to
the close of its business day (which is currently 4:00 p.m., New York time),
will become effective that day. Orders for the Money Market Fund received by the
Distributor prior to 12:00 noon, New York time, on a business day, will become
effective that day, if federal funds are received that same day by the
Distributor. Authorized brokers or financial institutions which receive orders
from their customers are obligated to transmit them to the Distributor promptly.
You should receive written confirmation of your order within a few days of the
Distributor's receipt of instructions from your authorized broker or financial
institution.
BY WIRE. Investments may be made directly through the use of wire
transfers of federal funds. To purchase shares by a federal funds wire, please
first contact the Distributor's Wire Desk. The Wire Desk will establish a record
of information for the wire to insure the correct processing of monies. You can
reach the Wire Desk at 800-453-4234.
Then, contact your bank and request it to wire monies using the following
instructions:
State Street Bank & Trust Company
Boston, MA
ABA #011000028
Account #99051773
Attention: FMB Fund Name
Further Credit to: Your Account Name and
Account Number
Your bank will normally charge you a fee for handling a federal funds wire
transfer.
As long as you have received and read the Prospectus, you may establish a
new account through the Wire Desk, except that IRAs may not be opened in this
manner. When new accounts are established by wire, the investor's social
security or tax identification number ("TIN") will not be considered certified,
and dividends and distributions will be reinvested, until a signed application
is received. Should any dividend distributions or redemptions be paid before the
TIN is certified, they may be subject to 20% federal tax withholding. With the
application, the shareholder can specify an alternative distribution option and
add any special features offered by the Fund. Completed applications should be
forwarded immediately after making a purchase by wire to FMB Funds, Inc., P.O.
Box 8526, Boston, Massachusetts 02266-8526.
BY AUTOMATIC INVESTMENT. Investors may participate in the Automatic
Investment Program, which is an investment plan that automatically debits money
from the shareholder's designated bank account and invests it in one or more of
the Funds through the use of electronic fund transfers or automatic bank drafts.
Shareholders may elect to make investments by transfers of a minimum of $25 on
any day of the
24
<PAGE> 29
month or twice per month into their established Fund account. The $25 fee may be
reduced or waived from time to time by the Fund or the Distributor. No minimum
initial investment applies when an account is established through the Automatic
Investment Program. Contact the Funds for more information about the Automatic
Investment Program.
IN-KIND PURCHASES. If accepted by a Fund, shares of a Fund may be
purchased in exchange for securities which are eligible for acquisition by the
Fund as described in this Prospectus. Securities to be exchanged which are
accepted by a Fund will be valued in accordance with the procedures referenced
under "Fund Share Valuation" in this Prospectus at the time of the next
determination of net asset value after such acceptance. Shares issued by a Fund
in exchange for securities will be issued at net asset value determined as of
the same time. All dividends, interest, subscription, or other rights pertaining
to such securities shall become the property of the Fund whose shares are being
acquired and must be delivered to the Fund by the investor upon receipt from the
issuer.
The Funds will accept securities for their portfolios in exchange for
shares issued by them, but only if: (1) such securities are, at the time of the
exchange, eligible to be included in the Fund whose shares are to be issued and
current market quotations are readily available for such securities; (2) the
investor represents and agrees that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act of 1933 or under the laws of the country in which the principal market for
such securities exists, or otherwise; (3) the value of any such security (except
U.S. Government securities) being exchanged together with other securities of
the same issuer owned by the Fund will not exceed 5% of the net assets of the
Fund immediately after the transaction; and (4) such securities are consistent
with the Fund's investment objectives and policies, as applied by the Adviser,
and otherwise acceptable to the Adviser in its sole discretion.
A gain or loss for federal income tax purposes may be realized by taxable
investors making in-kind purchases upon the exchange depending upon the cost of
the securities exchanged. Investors interested in such exchanges should contact
the Adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Any of the Funds may be used as an investment for existing or new IRAs,
although the Michigan Tax-Free Bond Fund is unlikely to be an appropriate choice
for this purpose. IRAs are subject to a minimum initial investment of $250 in a
Fund and applicable contribution limits set by the Internal Revenue Service. If
you do not have an existing IRA that permits investments in the Funds, you may
establish one, using a special application form available from the FMB Funds,
through an account with State Street Bank & Trust Company as custodian. There is
an annual $10.00 per Fund fee with a maximum of $30.00 per year with respect to
each such IRA, in addition to fees which may be charged by a bank as trustee.
The telephone, wire and checkwriting privileges described below, are not
available to IRA investors. For more information about IRA accounts, call the
FMB Funds at 800-453-4234.
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<PAGE> 30
EXCHANGE PRIVILEGES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in an identically registered account by mail or by
telephone. Before engaging in an exchange transaction, a shareholder should read
carefully the portions of this Prospectus describing the Fund into which the
exchange will occur. A shareholder may not exchange shares of one Fund for
shares of another Fund if shares of the Fund into which the investor desires to
exchange are not qualified for sale in the state of the shareholder's residence.
Shares of each class may be exchanged only for shares of the same class in
another Fund. The Company may terminate or amend the terms of the exchange
privileges at any time. Under SEC rules, 60 days' prior notice of any amendments
or termination of exchange privileges will be given to shareholders, except in
certain extraordinary circumstances. An exchange is treated as a sale of a
security on which a gain or loss may be recognized.
Some or all of the shares of the Funds for which payment has been received
(i.e. an established account), may be exchanged for shares at their net asset
value of other Funds within the Company with similar or lower sales loads or for
shares of other Funds within the Company which do not have sales loads. No
service fee is imposed. All exchanges will be made based on the net asset value
next determined following receipt of the request by a Fund in good order. See
"Dividends, Distributions and Federal Income Tax" for an explanation of
circumstances in which sales loads paid to acquire shares of the Funds may not
be taken into account in determining gain or loss on the disposition of those
shares.
EXCHANGE BY MAIL. To exchange Fund shares by mail, send a letter of
instruction to FMB Funds, Inc., P.O. Box 8526, Boston, Massachusetts 02266-8526.
The letter of instruction must include: (i) your account number and the
registered name(s) on the account, (ii) the name of the Fund from which, and the
name of the Fund into which you wish to exchange your investment, (iii) the
dollar amount of shares you wish to exchange, and (iv) the signatures of all
registered owners or authorized parties. All signatures must be guaranteed by a
member of a national securities exchange or by a commercial bank or trust
company. Signature guarantees by savings banks or notaries public are not
acceptable. Corporations, partnerships, trusts or other legal entities will be
required to submit additional documentation.
EXCHANGE BY TELEPHONE. To exchange Fund shares by telephone, or if you
have any questions, simply call the Funds toll free at 800-453-4234. You should
be prepared to give the telephone representative the following information: (i)
your account number, TIN and the registered name(s) on the account, (ii) the
names of the Fund from which, and the Fund into which, you wish to exchange your
investment, and (iii) the dollar or share amount you wish to exchange. The Funds
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Funds fail to employ such reasonable procedures,
they may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Funds require some form of
personal identification prior to acting upon instructions received by telephone,
record telephone instructions and provide written
26
<PAGE> 31
confirmation to investors of such transactions. Telephone exchange privileges
are available unless you have declined the option by checking the appropriate
"no" box on the Purchase Application.
REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any business
day on which the Funds are open for business. Shares will be redeemed at the net
asset value next determined after a redemption request in good order has been
received and accepted by the applicable Fund. See "Fund Share Valuation." A
redemption may be a taxable transaction on which gain or loss may be recognized.
Generally, however, gain or loss is not expected to be realized on a redemption
of shares of the Money Market Fund, which seeks to maintain a net asset value
per share of $1.00.
If the shares to be redeemed have been purchased by check, the redemption
proceeds will not be forwarded until the check received in payment for such
shares has been collected, which may take up to 15 days. Shareholders may avoid
this delay by investing through wire transfers of federal funds. During the
period prior to the time the shares are redeemed, dividends on the shares will
continue to accrue and be payable and the shareholder will be entitled to
exercise all other beneficial rights of ownership.
A Fund will ordinarily send the proceeds of a redemption by check to the
shareholder at the address of record on the next business day following the
redemption, although the Fund is permitted to take up to seven calendar days to
make payment. If the New York Stock Exchange is closed (or trading is
restricted) for any reason other than customary weekend or holiday closings or
if an emergency condition as determined by the SEC merits such action, the Funds
may suspend redemptions or postpone payment dates.
You may redeem your shares using any of the following methods:
THROUGH AN AUTHORIZED BROKER OR FINANCIAL INSTITUTION. You may redeem your
shares by contacting your authorized broker or financial institution and
instructing them to redeem your shares. They will promptly contact the
Distributor and execute the redemption order on your behalf. A redemption of
shares is effected based on receipt by the authorized broker or financial
institution of the shareholder's redemption request. An authorized broker or
financial institution may charge you a fee for this service.
BY MAIL. You may redeem your shares by sending a letter to FMB Funds,
Inc., P.O. Box 8526, Boston, Massachusetts 02266-8526. To be accepted, a letter
requesting redemption must include: (i) the Fund name and the registered name(s)
on the account from which you are redeeming shares, (ii) your account number,
(iii) the dollar amount of shares to be redeemed, (iv) the signatures of all
registered owners or authorized parties, and (v) a signature guarantee by a
member of a national securities exchange or a commercial bank or trust company
(a signature guarantee by a savings bank or a notary public is not acceptable),
provided that no signature guarantee is
27
<PAGE> 32
required if the amount to be redeemed is less than $5,000. Corporations,
partnerships, trusts or other legal entities will be required to submit
additional documentation.
TELEPHONE REDEMPTION BY CHECK. You may redeem your shares by calling the
Funds toll free at 800-453-4234. You should be prepared to give the telephone
representative the following information: (i) your account number, TIN and the
registered name(s) on the account, (ii) the name of the Fund from which you are
redeeming shares, and (iii) the dollar amount of shares to be redeemed. The
Funds employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Funds fail to employ such reasonable procedures,
they may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Funds require some form of
personal identification prior to acting upon instructions received by telephone,
record telephone instructions and provide written confirmation to investors of
such transactions. Telephone redemption privileges are available unless you have
declined the privilege by checking the appropriate "no" box on the Purchase
Application.
TELEPHONE REDEMPTION BY WIRE. You may redeem your shares by contacting the
Funds by mail or telephone and instructing them to send a wire transmission to a
designated account at your personal bank. Wire redemptions for the Money Market
Fund generally will be transferred to the designated account on the day the
request is received provided that it is received by 12:00 noon (New York time).
Your instructions should include: (i) your account number, TIN and the
registered name(s) on the account, (ii) the name of the Fund from which you are
redeeming shares, (iii) the dollar amount of shares to be redeemed, and (iv)
confirmation of your designated bank name and account number. The Funds employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. If the Funds fail to employ such reasonable procedures, they may be
liable for any loss, damage or expense arising out of any telephone transactions
purporting to be on a shareholder's behalf. In order to assure the accuracy of
instructions received by telephone, the Funds require some form of personal
identification prior to acting upon instructions received by telephone, record
telephone instructions and provide written confirmation to investors of such
transactions. Wire redemption privileges are available unless you have declined
the privilege by checking the appropriate "no" box on your Purchase Application.
Your bank may charge you a fee for receiving a wire payment on your behalf. In
order to redeem by wire, a copy of a voided check of the account where proceeds
are to be wired must have been attached to the Purchase Application.
CHECKWRITING. A checkwriting ($500 minimum, no maximum) feature is
available with respect to the Money Market Fund. There are no limits on the
number of checks that may be written on an account. Checks are free and may be
obtained from the Distributor. It is not possible to use a check to close out
your account since income will accrue to your account daily from the time a
check is written through the time it clears.
The above-mentioned telephone, wire and checkwriting privileges are not
available for IRAs or trust accounts.
28
<PAGE> 33
SYSTEMATIC WITHDRAWAL PLAN. A holder of $10,000 or more of shares of a
Fund may elect to have periodic redemptions from his account paid on a monthly,
quarterly or annual basis. The minimum periodic payment is $100. A sufficient
number of shares to make the scheduled redemption will normally be redeemed on
the date selected by the shareholder. Depending on the size of the payment
requested and fluctuation in the net asset value, if any, of the shares
redeemed, redemptions for the purpose of making such payments may reduce or even
exhaust the account. A shareholder may request that these payments be sent to a
predesignated bank or other designated party.
REDEMPTION OF SMALL ACCOUNTS. Due to the disproportionately higher cost of
servicing small accounts, each Fund reserves the right to redeem, on not less
than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or less. However, if during the 30-day notice period the
shareholder purchases sufficient shares to bring the value of the account above
$500, the redemption will not occur.
REDEMPTION IN KIND. All redemptions of shares of the Funds shall be made
in cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of a Fund during any 90-day period
of up to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of such period. This commitment is irrevocable without the prior
approval of the SEC and is a fundamental policy of the Funds that may not be
changed without shareholder approval. In the case of redemption requests by
shareholders in excess of such amounts, the Board of Directors reserves the
right to have the Funds make payment, in whole or in part, in securities or
other assets, in case of an emergency or any time a cash distribution would
impair the liquidity of a Fund to the detriment of the existing shareholders. In
this event, the securities would be valued in the same manner as the securities
of that Fund are valued. If the recipient were to sell such securities, he or
she would incur brokerage charges.
REINSTATEMENT PRIVILEGE. A shareholder in the Funds who has redeemed
shares may reinvest, without a sales charge, up to the full amount of such
redemption at the net asset value determined at the time of the reinvestment
within 90 days of the original redemption. The shareholder must reinvest in the
same Fund and the same account from which the shares were redeemed. A redemption
is a taxable transaction and gain or loss may be recognized for Federal income
tax purposes even if the reinstatement privilege is exercised. Any loss realized
upon the redemption will not be recognized as to the number of shares acquired
by reinstatement, except through an adjustment in the tax basis of the shares so
acquired.
The redemption methods and procedures described above may be modified or
terminated at any time by the Funds. If the Funds terminate any redemption
methods or procedures, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
The following discussion is only a brief summary of some of the important
tax considerations affecting the Funds and their shareholders. No attempt is
made to
29
<PAGE> 34
present a detailed explanation of all federal, state and local income tax
considerations, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential investors are urged to consult their own
tax advisers with specific reference to their own tax situation.
The Funds intend to operate as "regulated investment companies" under the
Internal Revenue Code of 1986, as amended (the "Code"). If so qualified, each
Fund will not be subject to federal income taxes with respect to net investment
income (i.e., investment company taxable income as such term is defined in the
Code, without regard to the deduction for dividends paid) and net capital gain
(i.e., the excess of long-term capital gains over short-term capital losses), if
any, that is distributed to its shareholders, provided that a Fund distributes
each tax year (i) at least 90% of its net investment income, and (ii) at least
90% of the excess of its tax-exempt interest income net of certain deductions
allocable to such income. Each Fund will be subject to a 4% nondeductible excise
tax on its taxable income to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each Fund intends to make
sufficient distributions to avoid application of this excise tax.
Except for tax-exempt dividends from the Michigan Tax-Free Bond Fund, all
dividends and capital gains dividends are taxable whether they are reinvested in
a Fund or received in cash, unless you are exempt from taxation or entitled to
tax deferral. Each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year.
Distributions of net capital gains designated by a Fund as a capital gain
dividend will be taxable as long-term capital gains, regardless of how long a
shareholder has held the Fund shares, and regardless of whether the
distributions are reinvested in additional shares or received in cash. Dividends
paid from a Fund's net investment income which includes a Fund's net realized
short-term capital gains, are taxable to shareholders as ordinary income.
If in any year a Fund should fail to qualify under Subchapter M of the Code
for tax treatment as a regulated investment company, the Fund would incur a
regular corporate federal income tax upon its taxable income for that year, and
distributions to shareholders would be taxable to such shareholders as ordinary
dividend income to the extent of the current and accumulated earnings and
profits of the Fund.
Generally, shareholders will be taxable on dividends or distributions in
the year of receipt; however, dividends declared in October, November or
December, payable to shareholders of record on a specified date in one of those
months and paid during the following January, will be treated as having been
distributed by the Fund (and received by the shareholders) on December 31 of the
year in which declared.
The Diversified Equity Fund will declare and pay as a dividend
substantially all of its net income quarterly. The Money Market Fund, the
Intermediate Government Income Fund and the Michigan Tax-Free Bond Fund will
declare dividends of substantially all of their net income daily and accrue and
pay those dividends monthly. Each Fund will distribute, at least annually,
substantially all net capital gains, if any, earned by such Fund. Each Fund will
inform shareholders of the amount and nature of all such income or gains.
30
<PAGE> 35
Distributions will be reinvested in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five business days prior
to the record date, to receive such distributions in cash. Dividends will be
paid within five business days after the end of the month in which they are
declared.
In the case of the Money Market Fund, shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the day prior to the date of redemption. Net investment
income of the Money Market Fund for a Saturday, Sunday or a holiday will be
declared as a dividend on the previous business day. In the case of the other
Funds that declare daily dividends, shares purchased will begin earning
dividends on the day after the purchase order is executed, and shares redeemed
will earn dividends through the day the redemption is executed. Investors who
redeem all or a portion of Fund shares prior to a dividend payment date will be
entitled on the next dividend payment date to all dividends declared but unpaid
on those shares at the time of their redemption.
The redemption, sale or exchange of shares of one Fund for shares of
another is a taxable event and may result in a gain or loss. Gain or loss, if
any, recognized on the sale or other disposition of shares of a Fund will be
taxed as capital gain or loss if the shares are capital assets in the
shareholder's hands. Generally, a shareholder's gain or loss will be a long-term
gain or loss if the shares have been held for more than one year. If a
shareholder sells or otherwise disposes of shares of a Fund before holding them
for more than six months, any loss on the sale or other disposition of such
shares shall be (i) treated as a long-term capital loss to the extent of any
capital gain dividends received by the shareholder with respect to such shares
or (ii) disallowed to the extent of any exempt-interest dividends received by
the shareholder with respect to such shares. A loss realized on a sale or
exchange of shares may be disallowed if other shares are acquired within a
61-day period beginning 30 days before and ending 30 days after the date that
the share are disposed of.
If you have not furnished a certified correct TIN (generally your social
security number) or have not certified that withholding does not apply, or if
the Internal Revenue Service has notified the Fund that the TIN listed on your
account is incorrect according to their records or that you are subject to
backup withholding, federal law generally requires the Fund to withhold 31% from
any dividends and/or redemptions (including exchange redemptions). Backup
withholding is not an additional tax and any amounts withheld may be credited
against the shareholder's federal income tax liability; a refund may be obtained
from the Internal Revenue Service if withholding results in overpayment of
federal income taxes. Federal law also requires each Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain non-resident alien,
non-U.S. partnership, non-U.S. trust, non-U.S. estate and non-U.S. corporation
shareholder accounts. Certain non-resident aliens will be subject to non-
resident alien tax withholding. The amount withheld is dependent on the country
of citizenship. For more information, please contact the Company at
800-453-4234.
Dividends and distributions from the Diversified Equity Fund, the Money
Market Fund and the Intermediate Government Income Fund may be subject to state
and
31
<PAGE> 36
local income taxes. Shareholders are advised to consult with their own tax
advisors about state and local tax matters.
THE MICHIGAN TAX-FREE BOND FUND. The Michigan Tax-Free Bond Fund intends
to qualify to pay "exempt-interest dividends," as that term is defined in the
Code, by holding at the end of each quarter of its taxable year at least 50% of
the value of its total assets in the form of obligations described in section
103(a) of the Code. Exempt-interest dividends are generally exempt from federal
income tax. Dividends from the Michigan Tax-Free Bond Fund will not be subject
to Michigan personal income taxes to the extent that such distributions qualify
as exempt-interest dividends and represent interest income attributable to
federally tax-exempt obligations of the State of Michigan and its political
subdivisions.
Although exempt-interest dividends may be excluded from a shareholder's
gross income for federal income tax purposes, a portion of the exempt-interest
dividends may be a specific preference item for purposes of determining the
shareholders liability (if any) under the federal alternative minimum tax under
the Code.
The exemption of interest income for federal income tax purposes and
Michigan personal income tax purposes may not result in similar exemptions under
the tax law of state and local authorities outside Michigan. In general, a state
exempts from state income tax only interest earned on obligations issued by that
state or its political subdivisions.
REGULATORY MATTERS
Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended, or any affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities, but do not
prohibit such a bank holding company or affiliate from acting as investment
adviser, administrator, transfer agent, or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of a customer. The Adviser, the Sub-Adviser and the Company believe that
the Adviser or the Sub-Adviser or any of their affiliates may perform the
investment advisory services for the Company described in this Prospectus,
without violation of such banking laws or regulations. However, future changes
in legal requirements relating to the permissible activities of banks and their
affiliates, as well as future interpretations of present requirements, could
prevent the Adviser, the Sub-Adviser or any of their affiliates from continuing
to perform investment advisory services for the Company.
If the Adviser, the Sub-Adviser or any of their affiliates were prohibited
from performing investment advisory services for the Company, it is expected
that the Company's Board of Directors would recommend to the Company's
shareholders that they approve new agreements with another entity or entities
qualified to perform such
32
<PAGE> 37
services and selected by the Board of Directors. The Company does not anticipate
that investors would suffer any adverse financial consequences as a result of
these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state laws.
OTHER INFORMATION
CAPITALIZATION
The Company was organized as a Maryland corporation on September 20, 1991,
and currently consists of four separately managed series, each representing an
interest in one of the Funds described herein. The Board of Directors may
establish additional series in the future. The capitalization of the Company
consists of 10,000,000,000 shares of common stock with a par value of $0.001
each. When issued in accordance with the terms and procedures described in this
Prospectus, shares of the Funds are fully paid, non-assessable and freely
transferable.
The Company's Board of Directors has authorized the Funds to issue multiple
classes of shares. This Prospectus relates only to the Consumer Service Class of
shares of the Fund. The Funds currently offer one other class of shares in
addition to the Consumer Service Class. The categories of investors that are
eligible to purchase shares may be different for each class of a Fund's shares.
In addition, other classes of a Fund's shares may be subject to differences in
sales charge arrangements, ongoing distribution and service fee levels, and
levels of certain other expenses, which may effect the relative performance of
the different classes of each Fund's shares. Investors may call the Company at
1-800-453-4234 to obtain additional information about other classes of shares of
each Fund that are offered. Any person entitled to receive compensation for
selling or servicing shares of the Funds may receive different levels of
compensation with respect to one class of shares over another.
VOTING
Shareholders have the right to vote on the election of Directors and on any
and all matters as to which, by law or the provisions of the Articles of
Incorporation of the Company, they may be entitled to vote. All shares of the
Company have equal voting rights and will be voted in the aggregate, and not by
class or series, except where voting by class or series is required by law or
where the matter involved affects only one class or series. The Company is not
required to hold annual meetings of the Funds' shareholders, and does not intend
to do so, in any fiscal year in which it is not required by law to elect
directors. The Directors are required to call a meeting for the purpose of
considering the removal of persons serving as Director, if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Company. See "Capital Stock" in the SAI.
33
<PAGE> 38
PERFORMANCE INFORMATION
A Fund may, from time to time, include yield and/or total return
information in advertisements or reports to shareholders or prospective
investors. The methods used to calculate the yield and/or total return of a Fund
are mandated by the SEC. See "Calculation of Yield and Total Return" in the SAI.
Quotations of "yield" for the Intermediate Government Income Fund or
Michigan Tax-Free Bond Fund are based on the investment income per share during
a particular 30-day (or one month) period (including dividends and interest),
less expenses accrued by such Fund during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period. Quotations of "yield"
for the Money Market Fund are based on the income received by a hypothetical
investment (less a pro-rata share of Fund expenses) over a particular seven-day
period, which is then "annualized" (i.e., assuming that the seven-day yield
would be received for 52 weeks, stated in terms of an annual percentage return
on the investment). Quotations of "effective yield" for the Money Market Fund
are calculated in a manner similar to that used to calculate yield, but include
the compounding effect of earnings on reinvested dividends.
The Michigan Tax-Free Bond Fund may also advertise its "taxable-equivalent
yield" or "taxable-equivalent effective yield." Taxable-equivalent yield or
taxable-equivalent effective yield is the yield or effective yield that an
investment, subject to federal and Michigan personal income taxes, would need to
earn in order to equal, on an after-tax basis, the yield or effective yield,
respectively, on an investment exempt from such taxes (normally calculated
assuming the maximum combined federal and Michigan marginal tax rate). A
taxable-equivalent yield or taxable-equivalent effective yield quotation for the
Michigan Tax-Free Bond Fund will be higher than the yield or the effective yield
quotation respectively for the Michigan Tax-Free Bond Fund.
A Fund may advertise its "total return." Total return will be calculated
for a Fund by (A) subtracting (i) the public offering price (which includes the
maximum sales load) of one share at the beginning of the period, from (ii) the
net asset value of all shares an investor would own at the end of the period for
the share held at the beginning of the period (assuming reinvestment of all
dividends and capital gain distributions), and dividing by (iii) the public
offering price per share at the beginning of the period or (B) on the basis of
net asset value per share (rather than the public offering price), in which case
the figures would not reflect the effect of any sales loads that would have been
paid by an investor, or by assuming that a sales load other than the maximum
sales load is assessed, provided that total return data derived pursuant to the
calculation described in (A) are also presented. Quotations of average annual
total return are expressed in terms of the average annual compounded rate of
return of a hypothetical investment in a Fund over periods of one, five and 10
years (up to the life of the Fund), reflect the deduction of a proportional
share of Fund expenses (on an annual basis), and assume that all dividends and
distributions are reinvested when paid.
34
<PAGE> 39
Performance quotations reflect only a Fund's performance during the
particular period on which the calculations are based. Performance quotations
for a Fund will vary based on changes in market conditions, the level of
interest rates and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
The Company's annual report to shareholders, which is available without
charge upon request, contains a discussion of the performance of the
Intermediate Government Income Fund, the Michigan Tax-Free Bond Fund and the
Diversified Equity Fund for the fiscal year ended November 30, 1996.
CUSTODY AND TRANSFER AGENCY
Bankers Trust Company, which has its principal business address at One
Bankers Trust Plaza, New York, New York 10006, serves as Custodian. SEI Fund
Resources acts as transfer agent to the Company. SEI Fund Resources has
sub-contracted certain of the services which it would otherwise be obligated to
provide, to State Street Bank and Trust Company.
EXPERTS
Price Waterhouse LLP serves as independent accountants for the Company.
Simpson Thacher & Bartlett (a partnership which includes professional
corporations) serves as counsel to the Company.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Distributor's Client
Service Department at 800-453-4234.
35
<PAGE> 40
FMB FUNDS, INC.
Oaks, PA 19456
(800) 453-4234
INVESTMENT ADVISER
FMB--TRUST
One Financial Plaza
Holland, MI 49423
INVESTMENT SUB-ADVISER
FIRST MICHIGAN BANK CORPORATION
One Financial Plaza
Holland, MI 49423
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, PA 19456
ADMINISTRATOR
SEI FUND RESOURCES
Oaks, PA 19456
CUSTODIAN
BANKERS TRUST COMPANY
One Bankers Trust Plaza
New York, NY 10006
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
30 South Seventeenth Street
Philadelphia, PA 19103
LEGAL COUNSEL
SIMPSON THACHER & BARTLETT
425 Lexington Avenue
New York, NY 10017
<PAGE> 41
[LOGO]
FMB MONEY MARKET FUND
O
FMB INTERMEDIATE
GOVERNMENT INCOME FUND
O O
FMB MICHIGAN
TAX-FREE BOND FUND
O O
FMB DIVERSIFIED
EQUITY FUND
O O O
Institutional Class
PROSPECTUS
March 28, 1997
SEI Financial Services Company
Distributor
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, FIRST MICHIGAN BANK CORPORATION, FMB-TRUST OR ANY OF THEIR
AFFILIATES, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. SHARES
OF THE FUNDS INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE> 42
FMB FUNDS, INC.
OAKS, PENNSYLVANIA 19456
FMB-TRUST
INVESTMENT ADVISER
FIRST MICHIGAN BANK CORPORATION
INVESTMENT SUB-ADVISER
SEI FUND RESOURCES
ADMINISTRATOR
SEI FINANCIAL SERVICES COMPANY
DISTRIBUTOR
This Prospectus describes the "Institutional Classes" of four mutual funds
(collectively, the "Funds" and individually, a "Fund"), which are separate
investment portfolios of FMB Funds, Inc. ("FMB Funds" or the "Company"). The
Funds, for which FMB-Trust (the "Adviser") and First Michigan Bank Corporation
(the "Sub-Adviser") serve as investment adviser and investment sub-adviser
respectively, and which are distributed by SEI Financial Services Company (the
"Distributor") and administered by SEI Fund Resources (the "Administrator"),
are:
- FMB Money Market Fund
- FMB Intermediate Government Income Fund
- FMB Michigan Tax-Free Bond Fund
- FMB Diversified Equity Fund
This Prospectus relates only to the "Institutional Class" of each Fund's
shares which only certain investors are qualified to purchase, and no other
class of shares of the Fund is offered hereby. INVESTMENTS IN THE MONEY MARKET
FUND ARE NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES GOVERNMENT. THE
MONEY MARKET FUND ATTEMPTS TO MAINTAIN THE VALUE OF ITS SHARES AT A CONSTANT
$1.00 PER SHARE, ALTHOUGH THERE CAN BE NO ASSURANCE THAT IT WILL ALWAYS BE ABLE
TO DO SO. SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY, FIRST MICHIGAN BANK CORPORATION, FMB-TRUST OR ANY OF THEIR
AFFILIATES, NOR ARE THEY FEDERALLY INSURED BY THE FDIC, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT RISK,
INCLUDING POSSIBLE LOSS OF PRINCIPAL. THIS PROSPECTUS SETS FORTH CONCISELY THE
INFORMATION A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING IN ANY OF THE
FUNDS. INVESTORS SHOULD READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE
REFERENCE.
A Statement of Additional Information ("SAI"), dated March 28, 1997
containing additional and more detailed information about the Funds, has been
filed with the Securities and Exchange Commission ("SEC") and is hereby
incorporated by reference into this Prospectus. The SAI is available without
charge and can be obtained by writing or calling the Funds at the address and
telephone number printed above.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
March 28, 1997
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights......................................................... 1
Fund Expenses...................................................... 4
Fee Table.......................................................... 4
Financial Highlights............................................... 5
Investment Policies of the Funds................................... 8
Description of Securities, Investment Practices and Restrictions... 10
Management of the Funds............................................ 18
Fund Share Valuation............................................... 19
Pricing and Purchase of Fund Shares................................ 20
Individual Retirement Accounts..................................... 22
Exchange Privileges................................................ 23
Redemption of Fund Shares.......................................... 24
Dividends, Distributions and Federal Income Tax.................... 26
Regulatory Matters................................................. 29
Other Information.................................................. 29
</TABLE>
ii
<PAGE> 44
HIGHLIGHTS
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
This Prospectus describes the Funds, each of which has its own distinct
investment objectives and policies, which are described and summarized here.
FMB MONEY MARKET FUND. The investment objective of the Money Market Fund
is to provide investors with a high level of current income, consistent with
preservation of capital and liquidity. The Money Market Fund pursues its
objective by investing its assets in a broad range of high quality, short-term,
money market instruments which have remaining maturities not exceeding thirteen
months and by maintaining a dollar-weighted average portfolio maturity of 90
days or less. Money market instruments in which the Money Market Fund may invest
include: securities issued or guaranteed by the U.S. Government, its agencies or
its instrumentalities, bank obligations of certain U.S. and foreign banks,
certain U.S. savings and loan obligations, commercial paper, corporate debt
securities, variable rate demand notes and repurchase agreements. All
investments by the Money Market Fund will be denominated in U.S. dollars. The
Money Market Fund attempts to maintain the value of its shares at a constant
$1.00 per share, although there can be no assurance that the Money Market Fund
will always be able to do so.
FMB INTERMEDIATE GOVERNMENT INCOME FUND. The primary investment objective
of the Intermediate Government Income Fund is to provide investors with a high
level of current income, consistent with prudent risk of capital. Total return,
which includes capital appreciation as well as current income, is a secondary
objective of the Intermediate Government Income Fund. Securities held by the
Intermediate Government Income Fund will include obligations issued or
guaranteed by the U.S. Government, its agencies or its instrumentalities, in the
form of U.S. Treasury bills, notes and bonds which have a dollar-weighted
average maturity not exceeding seven years; and, mortgage-backed securities and
collateralized mortgage obligations which have a dollar-weighted average
maturity not exceeding five years. As a matter of operating policy, under normal
market conditions, the Intermediate Government Income Fund's dollar-weighted
average portfolio maturity will not be less than three years.
FMB MICHIGAN TAX-FREE BOND FUND. The investment objective of the Michigan
Tax-Free Bond Fund is to provide investors with a high level of current income,
exempt from both federal and Michigan personal income taxes, while limiting the
risk of potential capital loss. The Michigan Tax-Free Bond Fund pursues this
objective by investing primarily in debt obligations with short-to-intermediate
remaining maturities (less than 15 years) issued by or on behalf of the State of
Michigan and its political subdivisions, agencies, and instrumentalities or by
other issuers outside the State of Michigan if such obligations pay interest
that, in the opinion of counsel to the issuer, is exempt from federal and
Michigan personal income tax ("Michigan Municipal Obligations"). The Michigan
Tax-Free Bond Fund invests primarily in Michigan Municipal Obligations that
present acceptable credit risks in the judgment of the Adviser and that at the
time of purchase are rated "investment-grade" or better or are unrated but are
determined by the Adviser to be of comparable quality. See
1
<PAGE> 45
Appendix A to the SAI for a description of rating categories. The lowest rated
investment-grade securities are deemed to have speculative characteristics. As a
fundamental policy, under normal market conditions, the Michigan Tax-Free Bond
Fund will have at least 80% of its net assets invested in securities the
interest on which is exempt from federal income tax and the federal alternative
minimum tax. As a matter of operating policy, under normal market conditions, at
least 65% of the value of its total assets will be invested in Michigan
Municipal Obligations consisting of bonds, as contrasted with notes or bills.
For temporary defensive purposes, including times when sufficient Michigan
Municipal Obligations may not be available in the marketplace at prices
considered by the Adviser to be acceptable, the Adviser may invest more than 20%
of the Fund's assets in securities that are subject to federal income tax,
Michigan personal income tax or both.
FMB DIVERSIFIED EQUITY FUND. The primary investment objective of the
Diversified Equity Fund is to provide investors with long-term capital
appreciation. Income generation is a secondary objective of the Diversified
Equity Fund. The Diversified Equity Fund pursues these objectives by investing
primarily in common stocks of both domestic and foreign companies. The
Diversified Equity Fund may invest in securities issued by large,
well-established companies, as well as those issued by smaller companies,
subject to a minimum market capitalization of $50 million. There may be some
additional risks associated with investments in smaller companies because their
shares tend to be less liquid than securities of larger companies. Further,
shares of small companies are generally more sensitive to purchase and sale
transactions and changes in the issuer's financial condition and, therefore, the
prices of such stocks may be more volatile than those of larger company stocks.
---------------------
Each of the Funds is subject to the general risks and considerations
associated with the types of investments it may make, as described above and
under "Description of Securities, Investment Practices and Restrictions" below.
The net asset value of the shares of each of the Funds (other than the Money
Market Fund) can be expected to fluctuate. With respect to the Money Market
Fund, there can be no assurance of maintaining the value of its shares at a
constant $1.00 per share.
MANAGEMENT OF THE FUNDS
FMB-Trust acts as investment adviser and First Michigan Bank Corporation
acts as investment sub-adviser to the Funds. For its services, the Adviser
receives a fee from each Fund at an annual rate that is based on the Fund's
average daily net assets. The Adviser, at no additional expense to the Fund,
remits to the Sub-Adviser a portion of its fee as determined by agreement with
the Sub-Adviser from time to time for the services performed by the Sub-Adviser.
See "Fee Table" and "Management of the Funds" in this Prospectus.
The Distributor distributes the Funds' shares, for which it may receive
certain additional fees. The Administrator provides certain administrative
services to the Funds, for which each Fund pays it a fee at an annual rate based
on the Fund's average daily net assets. See "Management of the Funds -- The
Distributor and Administrator" in this Prospectus.
2
<PAGE> 46
PURCHASE OF SHARES
Shares of the Institutional Class of the Funds are offered at net asset
value without a sales load. See "Fund Share Valuation" and "Pricing and Purchase
of Fund Shares." Purchases of Institutional Class shares may only be made by one
of the following types of "Institutional Investors": (i) a purchaser through a
trust, investment management or other account managed or administered by the
Adviser; (ii) a purchaser who at the time of placing an order for shares has an
investment balance in the Funds of one million dollars or more; or (iii) a
purchaser making an initial investment of one million dollars or more. Purchases
may be made through an authorized broker or financial institution, including
FMB-Brokerage Services, Inc., an affiliate of the Adviser and Sub-Adviser, by
mail or by wire.
REDEMPTION OF SHARES
Shares may be redeemed at their next determined net asset value. See
"Redemption of Fund Shares" and "Fund Share Valuation." Requests for redemptions
may be placed through an authorized broker or financial institution, including
FMB-Brokerage Services, Inc., an affiliate of the Adviser and Sub-Adviser, by
mail or by telephone. The Funds reserve the right to redeem, upon not less than
30 days' notice, all shares in a Fund account (other than the account of an IRA
investor) which has been reduced by redemptions to a value below $500.
DIVIDENDS AND DISTRIBUTIONS
The Diversified Equity Fund will declare and pay as a dividend
substantially all of its net income quarterly. The other Funds will declare
dividends of substantially all of their net income daily and accrue and pay
those dividends monthly. Any net capital gains of a Fund will be distributed at
least annually. All dividends and distributions will be reinvested automatically
at net asset value in additional shares of the Fund unless cash payment is
requested by a shareholder.
3
<PAGE> 47
FUND EXPENSES
The following fee table is provided to assist investors in understanding
the various costs and expenses that a shareholder can expect to incur as an
investor in the Institutional Class of a Fund.
FEE TABLE*
<TABLE>
<CAPTION>
FMB FMB
FMB INTERMEDIATE MICHIGAN FMB
MONEY GOVERNMENT TAX-FREE DIVERSIFIED
MARKET INCOME BOND EQUITY
FUND FUND FUND FUND
------ ------------ -------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on the Purchase of
Shares (as a percentage of
offering price).................................. None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)
Advisory Fees (after waiver)**..................... 0.35% 0.45% 0.35% 1.00%
12b-1 Fees......................................... None None None None
Other Expenses***.................................. 0.33% 0.34% 0.53% 0.41%
------ ----- -------- -----
Total Fund Operating Expenses (after waiver and
reimbursement)****............................. 0.68% 0.79% 0.88% 1.41%
===== ========= ======= ========
</TABLE>
EXAMPLE: A shareholder would pay the following expenses on a $1,000 investment
assuming (1) a 5% annual return***** and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
FMB FMB
FMB INTERMEDIATE MICHIGAN FMB
MONEY GOVERNMENT TAX-FREE DIVERSIFIED
MARKET INCOME BOND EQUITY
FUND FUND FUND FUND
------ ------------ -------- -----------
<S> <C> <C> <C> <C>
1 year............................................. $ 7 $ 8 $ 9 $ 14
3 years............................................ $ 22 $ 25 $ 28 $ 45
5 years............................................ $ 38 $ 44 $ 49 $ 77
10 years........................................... $ 85 $ 98 $108 $ 169
</TABLE>
- ---------------
* The expense information in the table has been restated to reflect the
elimination of certain expense waivers for FMB Michigan Tax-Free Bond Fund
which were in effect for the prior year.
** Absent such waiver, Advisory Fees would be 0.55% for the Michigan Tax-Free
Bond Fund.
*** Other Expenses include, but are not limited to, administrative service,
legal, audit, insurance, printing and registration fees.
**** Absent such waiver, Total Fund Operating Expenses would be 1.08% for the
Michigan Tax-Free Bond Fund.
***** The assumed 5% annual return is hypothetical and should not be considered
a representation of past or future annual return; the actual rate of
return may be greater or less than the assumed rate.
4
<PAGE> 48
FMB FUNDS, INC.
INSTITUTIONAL CLASS
The following financial highlights have been audited by Price Waterhouse
LLP, Independent Accountants, whose report on the Financial Statements, which
includes this data, is included in the Company's Annual Report to Shareholders
for the fiscal year ended November 30, 1996, which is incorporated by reference
into the SAI. This information should be read in conjunction with the Financial
Statements and notes thereto, which are included in the Annual Report. The
Annual Report may be obtained by shareholders by writing or calling at the
address or telephone number printed on the cover of this Prospectus.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FMB MONEY MARKET FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $1.00 $1.00 $1.00 $1.00 $1.00
-------- ------- -------- ------- -------
Income from Investment
Operations:
Net investment income....... 0.05 0.05 0.04 0.03 0.04
-------- ------- -------- ------- -------
Less dividends from net
investment income........... (0.05) (0.05) (0.04) (0.03) (0.04)
-------- ------- -------- ------- -------
Net Asset Value, End of
Period...................... $1.00 $1.00 $1.00 $1.00 $1.00
======== ======= ======== ======= =======
Total return.................. 4.87% 5.28% 3.51% 2.97% 3.78%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................... $152,549 $ 87,238 $103,301 $ 65,448 $ 58,596
Ratios of Expenses to
Average Net Assets........ 0.68% 0.65% 0.68% 0.32% 0.27%
-----
Ratios of Expenses before
effect of waivers......... 0.68% 0.65% 0.70% 0.68% 0.91%
-----
Ratios of Net Investment
Income to Average Net
Assets.................... 4.79% 5.16% 3.46% 2.91% 3.59%
-----
Ratios of Net Investment
Income to Average Net
Assets before effect of
waivers................... 4.79% 5.16% 3.44% 2.55% 2.95%
- ---------------
* Fund Commenced Operations on
December 2, 1991
</TABLE>
5
<PAGE> 49
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FMB INTERMEDIATE GOVERNMENT INCOME FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $10.24 $9.66 $10.46 $10.10 $10.00
------------ ------------ ------------ ------------ ------------
Income from Investment
Operations:
Net investment income....... 0.59 0.61 0.57 0.59 0.60
Net gain (loss) on
securities (both realized
and unrealized)........... (0.10) 0.58 (0.80) 0.36 0.10
------------ ------------ ------------ ------------ ------------
Total from Investment
Operations................ 0.49 1.19 (0.23) 0.95 0.70
------------ ------------ ------------ ------------ ------------
Less Distributions:
Dividends from net
investment income......... (0.60) (0.61) (0.57) (0.59) (0.60)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of
Period.................... $10.13 $10.24 $9.66 $10.46 $10.10
=========== =========== =========== =========== ===========
Total Return.................. 4.97% 12.64% (2.23%) 9.60% 7.10%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................... $108,047 $114,646 $115,449 $105,820 $ 81,371
Ratios of Expenses to
Average Net Assets........ 0.79% 0.78% 0.83% 0.50% 0.43%
Ratios of Expenses before
effect of waivers......... 0.79% 0.78% 0.85% 0.78% 0.90%
Ratios of Net Investment
Income to Average Net
Assets.................... 5.89% 6.09% 6.45% 5.66% 5.85%
Ratios of Net Investment
Income to Average Net
Assets before effect of
waivers................... 5.89% 6.09% 6.43% 5.38% 5.38%
Portfolio Turnover Rate..... 16% 27% 20% 17% 29%
- ---------------
* Fund Commenced Operations on
December 2, 1991
</TABLE>
6
<PAGE> 50
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FMB MICHIGAN TAX-FREE BOND FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $10.79 $9.97 $10.61 $10.24 $10.00
------------ ------------ ------------ ------------ ------
Income from Investment
Operations:
Net investment income....... 0.50 0.49 0.47 0.49 0.48
Net gain (loss) on
securities (both realized
and unrealized)........... 0 0.82 (0.63) 0.37 0.24
------------ ------------ ------------ ------------ ------
Total from Investment
Operations................ 0.50 1.31 (0.16) 0.86 0.72
------------ ------------ ------------ ------------ ------
Less Distributions:
Dividends from net
investment income......... (0.50) (0.49) (0.47) (0.49) (0.48)
Realized capital gains...... 0 0 (0.01) 0 0
------------ ------------ ------------ ------------ ------
Net Asset Value, End of
Period...................... $10.79 $10.79 $9.97 $10.61 $10.24
=========== =========== =========== =========== ===========
Total Return.................. 4.78% 13.21% (1.49%) 8.53% 7.29%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................... $ 23,082 $ 20,700 $ 15,495 $ 11,779 $6,043
Ratios of Expenses to
Average Net Assets........ 0.68% 0.70% 0.51% 0.35% 0.29%
Ratios of Expenses before
effect of
waivers/reimbursements.... 1.05% 1.18% 1.19% 1.38% 2.55%
Ratios of Net Investment
Income to Average Net
Assets.................... 4.72% 4.62% 4.50% 4.59% 4.68%
Ratios of Net Investment
Income to Average Net
Assets before effect of
waivers................... 4.35% 4.14% 3.82% 3.56% 2.42%
Portfolio Turnover Rate..... 16% 35% 22% 13% 30%
- ---------------
* Fund Commenced Operations on
December 2, 1991
</TABLE>
7
<PAGE> 51
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FMB DIVERSIFIED EQUITY FUND
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FOR A SHARE OUTSTANDING NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
THROUGHOUT EACH PERIOD 1996 1995 1994 1993 1992*
- ------------------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning of
Period...................... $14.58 $11.44 $11.37 $11.61 $10.00
------- ------- ------- ------- -------
Income from Investment
Operations:
Net investment income....... 0.12 0.12 0.07 0.09 0.12
Net gain (loss) on
securities (both realized
and unrealized)........... 3.16 3.13 0.08 (0.25) 1.60
------- ------- ------- ------- -------
Total from Investment
Operations................ 3.28 3.25 0.15 (0.16) 1.72
------- ------- ------- ------- -------
Less Distributions:
Dividends from net
investment income......... (0.13) (0.11) (0.08) (0.08) (0.11)
------- ------- ------- ------- -------
Net Asset Value, End of
Period...................... $17.73 $14.58 $11.44 $11.37 $11.61
======= ======= ======= ======= =======
Total Return.................. 22.58% 28.54% 1.34% (1.40%) 17.31%
Ratios/Supplemental Data:
Net Assets, End of Period
(000's)................... $61,857 $ 53,325 $ 42,229 $ 38,979 $ 29,596
Ratios of Expenses to
Average Net Assets........ 1.41% 1.50% 1.61% 1.50% 1.42%
Ratios of Expenses before
effect of
waivers/reimbursements.... 1.41% 1.50% 1.61% 1.53% 2.05%
Ratios of Net Investment
Income to Average Net
Assets.................... 0.74% 0.92% 0.69% 0.82% 1.12%
Ratios of Net Investment
Income to Average Net
Assets before effect of
waivers................... 0.74% 0.92% 0.69% 0.79% 0.49%
Portfolio Turnover Rate..... 9% 20% 49% 22% 5%
Average Commission Rate +... $ 0.0800
- ---------------
* Fund Commenced Operations on
December 2, 1991
+ Average commission rate paid per share of equity security purchases and sales during the period.
Presentation of the rate is only required for fiscal years beginning after September 1, 1995.
</TABLE>
INVESTMENT POLICIES
OF THE FUNDS
Each Fund has its own investment objectives, as described earlier in this
Prospectus, which are fundamental. Each Fund also follows its own investment
policies
8
<PAGE> 52
and practices, subject to certain investment restrictions, all as described
further below. The SAI also contains more specific descriptions of investment
restrictions which govern the investments of the Funds.
FMB MONEY MARKET FUND. The Money Market Fund, a diversified portfolio,
invests only in U.S. dollar-denominated "Eligible Securities" that the Board of
Directors of the Company, or the Adviser on its behalf, determines present
minimal credit risks and that have remaining maturities not exceeding thirteen
months, as defined in Rule 2a-7 under the Investment Company Act of 1940 (the
"Act"), and maintains a dollar-weighted average portfolio maturity of 90 days or
less. The Money Market Fund will endeavor to maintain a net asset value of $1.00
per share; however, there is no assurance that this objective will be achieved.
The Money Market Fund may invest only in:
(i) securities issued or guaranteed by the U.S. Government, its
agencies or its instrumentalities;
(ii) negotiable certificates of deposit, fixed time deposits, bankers'
acceptances, interest bearing demand accounts or other short-term
obligations of U.S. or foreign banks which have more than $500 million in
total assets at the time of investment and, in the case of U.S. banks, are
members of the Federal Reserve System or are examined by the Comptroller of
the Currency, or whose deposits are insured by the FDIC;
(iii) negotiable certificates of deposit and time deposits of U.S.
savings and loan associations that have more than $1 billion in total
assets at the time of investment;
(iv) commercial paper rated at the date of purchase at least A-2 or
its equivalent by a nationally recognized statistical rating organization
(an "NRSRO"), provided that investment in commercial paper in the lowest of
the rating categories described above does not exceed five percent of total
assets and that investment in any single issuer of commercial paper rated
A-2 or its equivalent does not exceed one million dollars or one percent of
the total assets of the Money Market Fund at the time of such investment;
and
(v) repurchase agreements relating to any of the foregoing instruments
which are fully collateralized by the instruments described in (i), above.
FMB INTERMEDIATE GOVERNMENT INCOME FUND. The Intermediate Government
Income Fund, a diversified portfolio, invests primarily in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities in the form
of U.S. Treasury bills, notes and bonds, mortgage-backed securities and
collateralized mortgage obligations. As a fundamental policy, under normal
market conditions, the Intermediate Government Income Fund invests at least 65%
of its assets in such securities. Certain of these securities may be subject to
repurchase agreements and this Fund also may engage in transactions in interest
rate futures, contracts and options thereon. For a further description of these
securities and other investment activities, see "Description of Securities,
Investment Practices and Restrictions" herein.
9
<PAGE> 53
FMB MICHIGAN TAX-FREE BOND FUND. The Michigan Tax-Free Bond Fund, a
non-diversified portfolio, purchases primarily Michigan Municipal Obligations
that, at the time of purchase, are rated investment grade or better by an NRSRO
or are unrated but are determined by the Adviser to be of comparable quality,
and/or are fully collateralized by U.S. Government securities. The Michigan
Tax-Free Bond Fund will have, under normal market conditions, at least 80% of
its net assets invested in securities paying interest that is exempt from
federal income tax and the federal alternative minimum tax, with at least 65% of
the value of its total assets invested in Michigan Municipal Obligations
consisting of bonds, as contrasted with notes or bills. The remaining assets of
this Fund may be invested in bank obligations, commercial paper, corporate debt
securities, mortgage-related securities and other asset-backed securities.
FMB DIVERSIFIED EQUITY FUND. The Diversified Equity Fund, a diversified
portfolio, may invest in a broad range of common stocks of both domestic and
foreign issuers. The Adviser also may invest in other securities in addition to
common stock, such as preferred stocks, debt securities convertible into common
stocks and warrants or other rights to acquire common stocks. The Diversified
Equity Fund will not invest more than 5% of its net assets in warrants,
including no more than 2% of its net assets in warrants that are not listed on
the New York or American Stock Exchanges. Under normal market conditions, the
Diversified Equity Fund will invest at least 65% of its total assets in common
stocks or securities convertible into common stocks. The Diversified Equity Fund
may also invest in American Depositary Receipts ("ADRs"), as described below in
"Description of Securities, Investment Practices and Restrictions -- Investment
in Foreign Securities." For temporary defensive purposes and to meet anticipated
liquidity needs, the Diversified Equity Fund may invest in U.S. Government
securities, certificates of deposit, bankers' acceptances, commercial paper,
repurchase agreements fully collateralized by U.S. Government securities
(maturing in seven days or less) and debt obligations of corporations (corporate
bonds, debentures, notes and other similar corporate debt instruments) which are
rated investment-grade or better by an NRSRO.
The following Section describes in greater detail different types of
securities, investment practices and restrictions of the various Funds.
DESCRIPTION OF SECURITIES, INVESTMENT
PRACTICES AND RESTRICTIONS
U.S. GOVERNMENT SECURITIES (All Funds). U.S. Government securities are
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Treasury bills, which have maturities of up to one year,
notes, which have maturities ranging from one year to 10 years, and bonds, which
have maturities of 10 to 30 years, are direct obligations of the United States.
Other U.S. Government securities include debt securities issued or
guaranteed by U.S. Government-sponsored enterprises and federal agencies and
instrumentalities. Some types of U.S. Government securities are supported by the
full faith and credit of
10
<PAGE> 54
the United States or U.S. Treasury guarantees, such as mortgage-backed
certificates guaranteed by the Government National Mortgage Association
("GNMA"). Other types of U.S. Government securities, such as obligations of the
Student Loan Marketing Association, provide recourse only to the credit of the
agency or instrumentality issuing the obligation. In the case of obligations not
backed by the full faith and credit of the United States, the investor must look
to the agency issuing or guaranteeing the obligation for ultimate repayment.
MICHIGAN MUNICIPAL OBLIGATIONS (FMB Michigan Tax-Free Bond Fund only). The
municipal obligations which the Michigan Tax-Free Bond Fund may purchase include
fixed and floating rate and variable rate municipal obligations, participation
interests in municipal bonds, tax-exempt commercial paper, short-term municipal
notes, and stand-by commitments. The Michigan Tax-Free Bond Fund will only
purchase Michigan Municipal Obligations that, at the time of purchase, are rated
investment-grade or better by an NRSRO or are unrated but are determined by the
Adviser to be of comparable quality, and/or are fully collateralized by U.S.
Government securities. The Michigan Tax-Free Bond Fund's concentration in
investments in Michigan Municipal Obligations will subject the Fund to greater
risk with respect to its portfolio securities than an investment company that is
permitted to invest in a broader range of investments, because changes in the
financial condition or market assessment of issuers of Michigan Municipal
Obligations generally may cause substantial fluctuations in the Fund's yield and
price of Fund shares. Also, political or economic developments that affect one
such security might affect the other securities. See "Special Factors Affecting
the Michigan Tax-Free Bond Fund" in the SAI.
BANK AND SAVINGS AND LOAN OBLIGATIONS (All Funds except FMB Intermediate
Government Income Fund). These obligations include negotiable certificates of
deposit, fixed time deposits, bankers' acceptances, and interest bearing demand
accounts. The Funds limit their bank investments to dollar-denominated
obligations of U.S., Canadian, Asian or European banks which have more than $500
million in total assets at the time of investment or of United States savings
and loan associations which have more than $1 billion in total assets at the
time of investment and, in the case of U.S. banks, are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the FDIC.
COMMERCIAL PAPER (All Funds except FMB Intermediate Government Income
Fund). Commercial paper includes short-term unsecured promissory notes, and
variable floating rate demand notes issued by domestic and foreign bank holding
companies, corporations and financial institutions as well as similar taxable
and tax-exempt instruments issued by government agencies and instrumentalities.
The Money Market Fund purchases only commercial paper that is rated at the time
of purchase, at least A-2 or its equivalent by an NRSRO, and is deemed to
present minimal credit risks. The Money Market Fund limits its purchases of
commercial paper in the lowest of the rating categories described above to five
percent of its total assets. The Money Market Fund also limits its investment in
any single issuer of commercial paper rated A-2 or its equivalent to the greater
of one million dollars or one percent of the total assets of the Money Market
Fund at the time of investment in such commercial paper.
11
<PAGE> 55
REPURCHASE AGREEMENTS (All Funds). Securities held by the Funds may be
subject to repurchase agreements. A repurchase agreement is a transaction in
which the seller of a security commits itself at the time of the sale to
repurchase that security from the purchaser (a Fund) at a mutually agreed upon
time and price. For certain purposes, these agreements may be considered to be
loans by the purchaser (a Fund) collateralized by the underlying securities.
These agreements will be fully collateralized and the collateral will be
marked-to-market daily. The Funds will enter into repurchase agreements only
with dealers, domestic banks or recognized financial institutions which, in the
opinion of the Adviser, present minimal credit risks in accordance with
guidelines approved by the Board of Directors of the Company (the "Board of
Directors"). While the maturity of the securities underlying a repurchase
agreement transaction may be more than one year, the term of the repurchase
agreement generally will be seven days or less. A repurchase agreement with a
maturity of more than seven days will be treated as an illiquid security for the
purposes described below (under "Illiquid or Restricted Investments"). In the
event of default by the seller under a repurchase agreement, a Fund could
experience losses that include (i) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (ii) additional expenses to the Fund for enforcing those rights; (iii)
possible loss of all or part of the income or proceeds of the repurchase
agreement; and (iv) possible delay in the disposition of the underlying security
pending court action or possible loss of rights in such securities.
VARIABLE AND FLOATING RATE DEMAND AND MASTER DEMAND NOTES (All Funds except
FMB Intermediate Government Income Fund). The Funds may, from time to time, buy
variable or floating rate demand notes issued by corporations, bank holding
companies and financial institutions and similar taxable and tax-exempt
instruments issued by government agencies and instrumentalities. These
securities typically will have a nominal maturity of over one year but will give
the holder the right to "put" the securities to a remarketing agent or other
entity at designated time intervals and on specified notice. The obligation of
the issuer of the put to repurchase the securities may be backed by a letter of
credit or other obligation issued by a financial institution. The purchase price
is ordinarily par plus accrued and unpaid interest. Generally, the remarketing
agent will adjust the interest rate every seven days (or at other specified
intervals) in order to maintain the interest rate at the prevailing rate for
securities with a seven-day or other designated maturity. The Money Market Fund
will only purchase demand instruments which provide that the Fund may receive
the principal amount of the note on seven or fewer days notice.
The Funds also may buy variable rate master demand notes. The terms of
these obligations permit a Fund to invest fluctuating amounts at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. These instruments permit weekly and, in some instances, daily changes
in the amounts borrowed. The Fund has the right to increase the amount under the
note at any time up to the full amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full amount of the
note without penalty. The notes may or may not be backed by bank letters of
credit. Because the notes are direct lending arrangements between the Fund and
borrower, it is not generally contemplated that
12
<PAGE> 56
they will be traded, and there is no secondary market for them, although they
are redeemable (and, thus, immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. In connection with any such purchase
and on an ongoing basis, the Adviser will consider the earning power, cash flow
and other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including situations in which all holders of such notes make
demand simultaneously. While master demand notes, as such, are not typically
rated by NRSROs, if not so rated, a Fund may, under its minimum rating
standards, invest in them only if, at the time of an investment, the issuer
meets the criteria set forth in this Prospectus for commercial paper
obligations.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES (FMB Michigan Tax-Free Bond
Fund only). The Michigan Tax-Free Bond Fund may purchase when-issued securities
and make contracts to purchase securities for a fixed price at a future date
beyond customary settlement time ("forward commitments") if the Fund holds, and
maintains until the settlement date in a segregated account, cash, U.S.
Government securities or high-grade debt obligations in an amount sufficient to
meet the purchase price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. Purchasing securities on a when-issued
basis and forward commitments involves a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of the Michigan Tax-Free Bond Fund's
other assets. No income accrues on securities purchased on a when-issued basis
prior to the time delivery of the securities is made, although a Fund may earn
income on securities it has deposited in the segregated account. The Michigan
Tax-Free Bond Fund does not pay for when-issued securities until they are
delivered. Although it would generally purchase securities on a when-issued
basis or enter into forward commitments with the intention of actually acquiring
securities, the Michigan Tax-Free Bond Fund may dispose of a when-issued
security or forward commitment prior to settlement, if the Adviser deems it
appropriate to do so, and may realize short-term profits or losses upon such a
sale.
MORTGAGE-RELATED SECURITIES (FMB Intermediate Government Income Fund
only). Mortgage pass-through securities are securities representing interests
in "pools" of mortgages in which payments of both interest and principal on the
securities are made monthly, in effect, "passing through" monthly payments made
by the individual borrowers on the residential mortgage loans which underlie the
securities (net of fees paid to the issuer or guarantor of the securities).
Early repayment of principal on mortgage pass-through securities (arising from
prepayments of principal due to sale of the underlying property, refinancing, or
foreclosure, net of fees and costs which may be incurred) may expose the Fund to
a lower rate of return upon reinvestment of principal. Also, if a security
subject to prepayment has been purchased at a premium, in the event of
prepayment the value of the premium would be lost. Like other fixed-income
securities, when interest rates rise, the value of mortgaged-related securities
generally will decline; however, when interest rates decline, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed-income securities. In recognition of this prepayment risk to
investors, the Public Securities Association (the "PSA") has standardized the
method of measuring
13
<PAGE> 57
the rate of mortgage loan principal prepayments. The PSA formula, the Constant
Prepayment Rate (the "CPR") or other similar models that are standard in the
industry will be used by the Fund in calculating maturity for purposes of its
investment in mortgage-related securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), which are supported only by the discretionary authority of the U.S.
Government to purchase the agency's obligations). Mortgage pass-through
securities created by non-governmental issuers (such as commercial banks,
savings and loan institutions, private mortgage insurance companies, mortgage
bankers and other secondary market issuers) may be supported by various forms of
insurance or guarantees issued by governmental entities.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, monthly. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured in multiple
classes, with each class bearing a different stated maturity or interest rate.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
INVESTMENT IN FOREIGN SECURITIES (FMB Diversified Equity Fund and FMB Money
Market Fund only). The Diversified Equity Fund and the Money Market Fund may
invest in securities of foreign private issuers that are denominated in and pay
interest in U.S. dollars. In addition, the Diversified Equity Fund may invest in
ADRs. ADRs are receipts issued by U.S. banks or trust companies in respect of
securities of foreign issuers held on deposit for use in the securities markets.
The Diversified Equity Fund treats ADRs as interests in the underlying
securities for purposes of its investment policies.
Investments in foreign securities involve certain considerations that are
not typically associated with investing in domestic securities. There may be
less publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
domestic issuers. In addition, with respect to certain foreign countries,
interest may be withheld at the source under foreign income tax laws, and there
is a possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries. Investments in ADRs are
subject to some, but not all, of the foregoing risks.
14
<PAGE> 58
OPTIONS ON SECURITIES AND INDICES OF SECURITIES (FMB Intermediate
Government Income Fund and FMB Diversified Equity Fund only). The FMB
Intermediate Government Income Fund and the FMB Diversified Equity Fund may
purchase and write (i.e., sell) call options ("calls") and put options ("puts")
on securities and indices of securities. In the case of the FMB Intermediate
Government Income Fund, such options will only involve debt securities and
indices of debt securities; in the case of the FMB Diversified Equity Fund, such
options will only involve common stocks and indices of common stocks.
When a Fund purchases an option, it pays a premium in return for the right
to buy (in the case of a call) or sell (in the case of a put) the underlying
security or index at the exercise price at any time during the option period
(usually not more than nine months in the case of common stock or fifteen months
in the case of debt securities). If an option is not exercised or sold, it will
become worthless on its expiration date. If an option is purchased and becomes
worthless on its expiration date, the Fund will have lost the premium, which
will result in a reduction in the Fund's net asset value or total return.
When a Fund writes an option, it receives a premium and gives the purchaser
the right to buy (in the case of a call) or sell (in the case of a put) the
underlying security or index at any time during the option period at a fixed
exercise price, regardless of market price changes during the option period. If
a call written by a Fund is exercised, the Fund forgoes any gain from an
increase in the market price of the underlying security or index over the
exercise price; if a put written by a Fund is exercised, the Fund may be
required to buy the underlying security or index at a disadvantageous price
above the market price.
Any option written by a Fund will be "covered" throughout the life of the
option. A call is "covered" if the Fund (i) owns the optioned securities, (ii)
maintains in a segregated account with the Fund's custodian, cash, cash
equivalents, U.S. Government securities or other high grade debt securities with
a value sufficient to enable the Fund to purchase the optioned securities or
index or (iii) owns an offsetting call option. A put is "covered" if the Fund
(i) maintains in a segregated account with the Fund's custodian, cash, cash
equivalents, U.S. Government securities or other high grade debt securities with
a value equal to the exercise price of the put or (ii) owns an offsetting put
option.
Options on securities generally settle by physical delivery of the
underlying security. Frequently, rather than taking or making delivery of the
underlying security through the process of exercising the option, options are
closed by entering into offsetting purchase or sale transactions that do not
result in ownership of the new option. Index options are generally cash settled
for the net amount, if any, by which the option is "in-the-money" (that is, the
amount by which the value of the underlying securities exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option)
at the time the option is exercised.
A Fund will realize a gain (or loss) on a closing purchase transaction with
respect to an option previously written by the Fund if the premium, plus
commission costs,
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paid to purchase the option is less (or greater) than the premium, less
commission costs, received on the sale of the option. A gain also will be
realized if an option which the Fund has written lapses unexercised, because the
Fund would retain the premium.
There can be no assurance that a liquid secondary market will exist at a
given time for any particular option.
FUTURES CONTRACTS (FMB Intermediate Government Income Fund and FMB
Diversified Equity Fund only). The Intermediate Government Income Fund may
purchase and sell interest rate futures contracts and options thereon as a hedge
against changes in interest rates, provided that not more than 5% of the Fund's
net assets are committed to such contracts and options thereon for purposes
other than bona fide hedging. See the SAI for further information about interest
rate futures contracts and options thereon.
The Diversified Equity Fund may enter into stock index futures contracts
and options thereon, in order to protect the value of its common stock
investments, provided that not more than 5% of the Fund's assets are committed
to such contracts and options thereon for purposes other than bona fide hedging.
See the SAI for further information about stock index futures contracts and
options thereon.
UNRATED INVESTMENTS (All Funds). Each Fund may purchase instruments that
are not rated if such obligations are of investment quality comparable to other
rated investments that are permitted to be purchased by such Fund and, in the
case of the Money Market Fund, if they are purchased in accordance with the
respective Fund's procedures adopted by the Company's Board of Directors in
accordance with Rule 2a-7 under the Act.
FIXED INCOME SECURITIES (All Funds). The FMB Money Market Fund, the
Intermediate Government Income Fund and the Michigan Tax-Free Bond Fund will
invest primarily in fixed income securities. As interest rates increase, the
value of the fixed income securities held by a Fund tends to decrease. This
effect will be more pronounced with respect to investments by a Fund in
mortgage-related securities, the value of which are more sensitive to interest
rate changes, as well as with respect to investments in fixed income securities
with longer maturities.
LOANS OF PORTFOLIO SECURITIES (All Funds except FMB Intermediate Government
Income Fund). To increase current income, each Fund may lend portfolio
securities comprising up to 5% of the Fund's total assets to brokers, dealers
and financial institutions, provided certain conditions are met, including the
condition that each loan is secured continuously by collateral maintained on a
daily marked-to-market basis in an amount at least equal to the current market
value of the securities loaned. For further information about portfolio security
lending, see the SAI.
BORROWING AND LENDING POLICIES (All Funds). As a matter of fundamental
policy, (i) no Fund may borrow money or pledge or mortgage its assets, except
that a Fund may borrow from banks up to 10% of the current value of its total
net assets for temporary or emergency purposes and those borrowings may be
secured by the pledge of not more than 15% of the current value of its total net
assets (but investments may
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<PAGE> 60
not be purchased by a Fund while any such borrowings are outstanding), and (ii)
no Fund may make loans, except loans of portfolio securities and except that a
Fund may enter into repurchase agreements with respect to its portfolio
securities and may purchase the types of debt instruments described in this
Prospectus.
ILLIQUID OR RESTRICTED INVESTMENTS (All Funds). The Funds may purchase
securities for which there is a limited trading market or which are subject to
restrictions on resale to the public. It is the policy of each Fund that
illiquid securities (including repurchase agreements of more than seven days'
duration, variable and floating rate demand and master demand notes not
requiring receipt of the principal note amount on seven days' notice or less,
securities of foreign issuers that are not listed on a recognized domestic or
foreign securities exchange and restricted securities which are determined to be
"illiquid") may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund in which they are held. The Fund may
purchase certain restricted securities ("Rule 144A Securities") for which there
may be a secondary market of qualified institutional buyers as contemplated by
recently adopted Rule 144A under the Securities Act of 1933. Rule 144A is a
recent development and there is no assurance that a liquid market in Rule 144A
Securities will develop or be maintained. To the extent that the number of
qualified institutional buyers is reduced, a previously liquid Rule 144A
Security may be determined to be illiquid, thus increasing the percentage of
illiquid assets in a Fund's portfolio.
OTHER MUTUAL FUNDS (All Funds). Each of the Funds may invest in shares of
other open-end, management investment companies, subject to the limitations of
the Act and subject to such investments being consistent with the overall
objective and policies of the Fund making such investment, provided that any
such purchases will be limited to short-term investments in shares of
unaffiliated investment companies and the Adviser will waive its advisory fees
for that portion of the Fund's assets so invested, except when such purchase is
part of a plan of merger, consolidation, reorganization or acquisition.
DIVERSIFICATION AND CONCENTRATION POLICIES (All Funds). Each Fund (except
the Michigan Tax-Free Bond Fund) is a diversified fund. As such, each such Fund
will not, with respect to 75% of its total assets, invest more than 5% of its
total assets in the securities of any one issuer (except for U.S. Government
securities) or purchase more than 10% of the outstanding voting securities of
any such issuer. The Money Market Fund may be subject to additional
diversification obligations pursuant to Rule 2a-7 under the Act. The Michigan
Tax-Free Bond Fund is non-diversified.
Also, each Fund will not invest more than 25% of its total assets in the
securities of any one industry, excluding the Money Market Fund which may invest
more than 25% of its total assets in instruments issued by domestic banks. For
this purpose, U.S. Government securities (and repurchase agreements related
thereto) and Michigan Municipal Obligations are not considered securities of a
single industry.
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MANAGEMENT OF THE FUNDS
THE DIRECTORS AND OFFICERS. The business and affairs of each Fund are
managed under the direction of the Board of Directors. Additional information
about the Directors, as well as the Funds' executive officers, is set forth in
the SAI under the heading "Management."
THE ADVISER AND SUB-ADVISER. The Adviser, FMB-Trust, is a wholly owned
subsidiary of the Sub-Adviser, First Michigan Bank Corporation (together with
FMB-Financial Group, "FMB"). As of November 30, 1996, the Adviser, together with
its affiliates, was providing investment services, through its portfolio
managers, with respect to trust and bank assets in excess of $2 billion.
The Investment Management group at FMB is led by Mr. Stanley P. Roberts,
Senior Vice President and Director of Investments, with over twenty years of
investment management experience with FMB. Mr. Duane C. Carpenter, Senior
Portfolio Manager, with nine years of investment management experience at FMB,
has been primarily responsible for the day-to-day management of the FMB Money
Market Fund since November 1993 and the FMB Intermediate Government Income Fund
since its inception. Mr. Daniel S. VanTimmeren, Assistant Vice President and
Senior Portfolio Manager, with twelve years of investment management experience
with FMB, has been primarily responsible for the day-to-day management of the
FMB Michigan Tax-Free Bond Fund since inception and the FMB Diversified Equity
Fund since November 1993.
Pursuant to an Advisory Agreement, the Adviser manages the investment of
the assets of the Funds and continuously reviews, supervises and administers the
Funds' investments. The Adviser is responsible for placing orders for the
purchase and sale of the Funds' investments directly with brokers and dealers
that are selected by it in its discretion. Pursuant to a Sub-Advisory Agreement
and subject to the supervision of the Adviser, the Sub-Adviser monitors approved
lists of broker-dealers, repurchase dealers and commercial paper issuers,
obtains and analyzes performance and market pricing information, and performs
such other services as delegated to it by the Adviser from time to time.
For the advisory services it provides to the Money Market Fund, the Adviser
is entitled to receive fees at annual rates of 0.35% of the first $500 million
of average net assets, 0.30% of the next $500 million of such assets, and 0.25%
of such assets in excess of $1 billion. For the advisory services it provides to
the other Funds, the Adviser is entitled to receive fees at annual rates of
0.45% of the average daily net assets in the Intermediate Government Income
Fund, 0.55% of the average daily net assets in the Michigan Tax-Free Bond Fund,
and 1.00% of the average daily net assets in the Diversified Equity Fund. Such
fees are payable monthly. Pursuant to the Sub-Advisory Agreement, the Adviser,
at no additional expense to the Fund, remits a portion of its fee as determined
by agreement with the Sub-Adviser from time to time for the services provided by
the Sub-Adviser.
Purchase and sale orders of the portfolio securities held by each Fund may
be combined with those of other accounts that the Adviser manages or advises,
and for
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<PAGE> 62
which it has brokerage placement authority, in the interest of seeking the most
favorable overall net results. When the Adviser determines that a particular
security should be bought or sold for a Fund and other accounts managed by the
Adviser, the Adviser undertakes to allocate those transactions among the
participants equitably.
THE DISTRIBUTOR AND ADMINISTRATOR. Pursuant to a Distribution Agreement,
the Distributor, whose address is Oaks, Pennsylvania 19456, acts as sponsor and
distributor of the Funds. The Distributor is a wholly-owned subsidiary of SEI
Investments Company ("SEI"), a leading provider of investment services to banks,
institutional investors, investment advisers and insurance companies.
The Company has entered into an Administration Agreement with the
Administrator pursuant to which the Administrator, a wholly owned subsidiary of
SEI, provides certain administrative services, other than investment advisory
services, necessary for each Fund's operations including all regulatory
reporting, accounting services and all necessary office space, equipment,
personnel and facilities. For these services, the Administrator receives from
each Fund a fee, payable monthly, at a maximum annual rate of up to 0.20% of
each Fund's average daily net assets. The Administrator also serves as transfer
agent for the Company.
---------------------
Each Fund bears all costs of its operations other than expenses
specifically assumed by the Distributor, the Adviser, the Sub-Adviser or the
Administrator. The costs borne by the Funds include legal and accounting
expenses, Directors' fees and expenses, insurance premiums, custodian and
transfer agent fees and expenses, expenses incurred in acquiring or disposing of
the portfolio securities of a Fund, expenses of registering and qualifying the
shares of the Funds for sale with the SEC and with various state securities
commissions, expenses of obtaining quotations on the Funds' portfolio securities
and pricing of the Funds' shares, expenses of maintaining the Funds' legal
existence, and of shareholders' meetings, and expenses of preparation and
distribution to existing shareholders of reports, proxies and prospectuses. Each
Fund bears its own expenses associated with its establishment as a series; these
expenses have been amortized over a five-year period from the commencement of a
Fund's operations. See "Management" in the SAI. Fund expenses directly
attributable to a Fund are charged to that Fund. All other expenses are
allocated appropriately among all the Funds in the Fund group in relation to the
net assets of each Fund or as is otherwise determined to be fair and equitable
by the Board of Directors.
FUND SHARE VALUATION
The net asset value per share is calculated as of 12:00 noon (New York
time) for the Money Market Fund and as of the close of regular trading on the
New York Stock Exchange (which is currently 4:00 p.m. (New York time)) for the
other three Funds, Monday through Friday, except for the following business
holidays with respect to all of the Funds: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and the
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following additional business holidays with respect to the Money Market Fund:
Martin Luther King's Birthday, Lincoln's Birthday, Columbus Day, and Veteran's
Day.
The net asset value per share of the Intermediate Government Income Fund,
the Michigan Tax-Free Bond Fund and the Diversified Equity Fund is computed by
dividing the value of its net assets attributed to a class of shares by the
total number of the Funds' outstanding shares for that class. All expenses,
including fees paid to the Adviser, Distributor and the Administrator, are
accrued daily and taken into account for the purpose of determining the net
asset value. In calculating net asset value, each such Fund's portfolio
securities will be valued at market value where there is a reliable market
quotation available for the securities and otherwise at fair value as determined
by or under the direction of the Company's Board of Directors. The Funds may
determine the market value of individual portfolio securities by using prices
provided by one or more professional independent pricing services to determine
reliable market quotations for securities held by a Fund. See the SAI for a more
complete description of these Funds' valuation methods. The Money Market Fund
uses the amortized cost method to value their portfolio securities and seek to
maintain a constant net asset value of $1.00 per share, although there can be no
assurance that this objective can be achieved. The amortized cost method
involves valuing a security at its cost and amortizing any discount or premium
over the period until maturity, regardless of the impact of fluctuating interest
rates on the market value of the security. See the SAI for a more complete
description of the amortized cost method.
PRICING AND PURCHASE OF FUND SHARES
Orders for purchases of Institutional Class shares will be executed at the
net asset value per share next determined after an order has become effective.
All monies received by the Funds for purchases of Institutional Class shares are
invested in full and fractional shares of the appropriate Fund. Certificates for
shares are not issued. The Company maintains records of each shareholder's
holdings of Fund shares, and each shareholder receives a statement confirming
transactions and dividends. The Company reserves the right to reject any
purchase order. All initial investments should be accompanied by a completed
Purchase Application, a form of which accompanies this Prospectus. A separate
application is required for Individual Retirement Account investments. The
Company and the Distributor reserve the right to waive or reduce the minimum
initial investment amount with respect to certain accounts.
An investment may be made by using any of the following methods:
BY MAIL. Shares are available for purchase by new and existing
shareholders through the mail by forwarding a completed Purchase Application, in
the case of new shareholders or a check with the proper account information in
the case of existing shareholders, along with a check to FMB Funds, Inc., P.O.
Box 8526, Boston, Massachusetts 02266-8526.
THROUGH AN AUTHORIZED BROKER OR FINANCIAL INSTITUTION. Shares are
available to new and existing shareholders through an authorized broker or
financial institution such as FMB-Brokerage Services, Inc., an affiliate of the
Adviser and the Sub-Adviser,
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<PAGE> 64
which has entered into a Selling Group Agreement with the Funds' Distributor. To
make an investment using this method, simply complete a Purchase Application and
contact your authorized broker or financial institution with instructions as to
the amount you wish to invest. Your authorized broker or financial institution
will then contact the Distributor to place the order on your behalf on that day.
Completed Purchase Applications received by your authorized broker or
financial institution for the Funds (other than the Money Market Fund) prior to
the determination of net asset value and transmitted to the Distributor prior to
the close of its business day (which is currently 4:00 p.m., New York time),
will become effective that day. Orders for the Money Market Fund received by the
Distributor prior to 12:00 noon, New York time, on a business day, will become
effective that day, if federal funds are received that same day by the
Distributor. Authorized brokers or financial institutions which receive orders
from their customers are obligated to transmit them to the Distributor promptly.
You should receive written confirmation of your order within a few days of the
Distributor's receipt of instructions from your authorized broker or financial
institution.
BY WIRE. Investments may be made directly through the use of wire
transfers of federal funds. To purchase shares by a federal funds wire, please
first contact the Distributor's Wire Desk. The Wire Desk will establish a record
of information for the wire to insure the correct processing of monies. You can
reach the Wire Desk at 800-453-4234.
Then, contact your bank and request it to wire monies using the following
instructions:
State Street Bank & Trust Company
Boston, MA
ABA #011000028
Account #99051773
Attention: FMB Fund Name
Further Credit to: Your Account Name and Account Number
Your bank will normally charge you a fee for handling a federal funds wire
transfer.
As long as you have received and read the Prospectus, you may establish a
new account through the Wire Desk, except that IRAs may not be opened in this
manner. When new accounts are established by wire, the investor's social
security or tax identification number ("TIN") will not be considered certified,
and dividends and distributions will be reinvested, until a signed application
is received. Should dividends, distributions or redemptions be paid before the
TIN is certified, they may be subject to 20% federal tax withholding. With the
application, the shareholder can specify an alternative distribution option and
add any special features offered by the Fund. Completed applications should be
forwarded immediately after making a purchase by wire to FMB Funds, Inc., P.O.
Box 8526, Boston, Massachusetts 02266-8526.
BY AUTOMATIC INVESTMENT. Investors may participate in the Automatic
Investment Program, which is an investment plan that automatically debits money
from the
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shareholder's designated bank account and invests it in one or more of the Funds
through the use of electronic fund transfers or automatic bank drafts.
Shareholders may elect to make investments by transfers of a minimum of $25 on
any day of the month into their established Fund account. The $25 fee may be
reduced or waived from time to time by the Fund or the Distributor. No minimum
initial investment applies when an account is established through the Automatic
Investment Program. Contact the Funds for more information about the Automatic
Investment Program.
IN-KIND PURCHASES. If accepted by a Fund, shares of a Fund may be
purchased in exchange for securities which are eligible for acquisition by the
Fund as described in this Prospectus. Securities to be exchanged which are
accepted by a Fund will be valued in accordance with the procedures referenced
under "Fund Share Valuation" in this Prospectus at the time of the next
determination of net asset value after such acceptance. Shares issued by a Fund
in exchange for securities will be issued at net asset value determined as of
the same time. All dividends, interest, subscription, or other rights pertaining
to such securities shall become the property of the Fund whose shares are being
acquired and must be delivered to the Fund by the investor upon receipt from the
issuer.
The Funds will accept securities for their portfolios in exchange for
shares issued by them, but only if; (1) such securities are, at the time of the
exchange, eligible to be included in the Fund whose shares are to be issued and
current market quotations are readily available for such securities; (2) the
investor represents and agrees that all securities offered to be exchanged are
not subject to any restrictions upon their sale by the Fund under the Securities
Act of 1933 or under the laws of the country in which the principal market for
such securities exists, or otherwise; (3) the value of any such security (except
U.S. Government securities) being exchanged together with other securities of
the same issuer owned by the Fund will not exceed 5% of the net assets of the
Fund immediately after the transaction; and (4) such securities are consistent
with the Fund's investment objectives and policies, as applied by the Adviser,
and otherwise acceptable to the Adviser in its sole discretion.
A gain or loss for federal income tax purposes may be realized by taxable
investors making in-kind purchases upon the exchange depending upon the cost of
the securities exchanged. Investors interested in such exchanges should contact
the Adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Any of the Funds may be used as an investment for existing or new IRAs,
although the Michigan Tax-Free Bond Fund is unlikely to be an appropriate choice
for this purpose. IRAs are subject to a minimum initial investment of $250 in a
Fund and applicable contribution limits set by the Internal Revenue Service. If
you do not have an existing IRA that permits investments in the Funds, you may
establish one, using a special application form available from the FMB Funds,
through an account with State Street Bank & Trust Company as custodian. There is
an annual $10.00 per Fund fee with a maximum of $30.00 per year with respect to
each such IRA, in addition to fees which may be charged by a bank as trustee.
The telephone, wire and checkwriting
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privileges described below, are not available to IRA investors. For more
information about IRA accounts, call the FMB Funds at 800-453-4234.
EXCHANGE PRIVILEGES
The Funds offer two convenient ways to exchange shares in one Fund for
shares in another Fund in an identically registered account -- by mail or by
telephone. Before engaging in an exchange transaction, a shareholder should read
carefully the portions of this Prospectus describing the Fund into which the
exchange will occur. A shareholder may not exchange shares of one Fund for
shares of another Fund if shares of the Fund into which the investor desires to
exchange are not qualified for sale in the state of the shareholder's residence.
Shares of each class may be exchanged only for shares of the same class in
another Fund. The Company may terminate or amend the terms of the exchange
privilege at any time. Under SEC rules, 60 days' prior notice of any amendments
or termination of exchange privileges will be given to shareholders, except in
certain extraordinary circumstances. An exchange is treated as a sale of a
security on which a gain or loss may be recognized. All exchanges will be made
based on the net asset value next determined following receipt of the request by
a Fund in good order.
EXCHANGE BY MAIL. To exchange Fund shares by mail, send a letter of
instruction to FMB Funds, Inc., P.O. Box 8526, Boston, Massachusetts 02266-8526.
The letter of instruction must include: (i) your account number and the
registered name(s) of the account, (ii) the name of the Fund from which, and the
name of the Fund into which you wish to exchange your investment, (iii) the
dollar amount of shares you wish to exchange, and (iv) the signatures of all
registered owners or authorized parties. All signatures must be guaranteed by a
member of a national securities exchange or by a commercial bank or trust
company. Signature guarantees by savings banks or notaries public are not
acceptable. Corporations, partnerships, trusts or other legal entities will be
required to submit additional documentation.
EXCHANGE BY TELEPHONE. To exchange Fund shares by telephone, or if you
have any questions, simply call the Funds toll free at 800-453-4234. You should
be prepared to give the telephone representative the following information: (i)
your account number, TIN and the registered name(s) of the account, (ii) the
names of the Fund from which, and the Fund into which, you wish to exchange your
investment, and (iii) the dollar amount of shares you wish to exchange. The
Funds employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Funds fail to employ such reasonable procedures,
they may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Funds require some form of
personal identification prior to acting upon instructions received by telephone,
record telephone instructions and provide written confirmation to investors of
such transactions. Telephone exchange privileges are available unless you have
declined the option by checking the appropriate "no" box on the Purchase
Application.
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REDEMPTION OF FUND SHARES
Shareholders may redeem their shares, in whole or in part, on any business
day in which the Funds are open for business. Shares will be redeemed at the net
asset value next determined after a redemption request in good order has been
received and accepted by the applicable Fund. See "Fund Share Valuation." A
redemption may be a taxable transaction on which gain or loss may be recognized.
Generally, however, gain or loss is not expected to be realized on a redemption
of shares of the Money Market Fund, which seeks to maintain a net asset value
per share of $1.00.
If the shares to be redeemed have been purchased by check, the redemption
proceeds will not be forwarded until the check received in payment for such
shares has been collected, which may take up to 15 days. Shareholders may avoid
this delay by investing through wire transfers of federal funds. During the
period prior to the time the shares are redeemed, dividends on the shares will
continue to accrue and be payable and the shareholder will be entitled to
exercise all other beneficial rights of ownership.
A Fund will ordinarily send the proceeds of a redemption by check to the
shareholder at the address of record on the next business day following the
redemption, although the Fund is permitted to take up to seven calendar days to
make payment. If the New York Stock Exchange is closed (or trading is
restricted) for any reason other than customary weekend or holiday closings or
if an emergency condition as determined by the SEC merits such action, the Funds
may suspend redemptions or postpone payment dates.
You may redeem your shares using any of the following methods:
THROUGH AN AUTHORIZED BROKER OR FINANCIAL INSTITUTION. You may redeem your
shares by contacting your authorized broker or financial institution and
instructing them to redeem your shares. They will promptly contact the
Distributor and execute the redemption order on your behalf. A redemption of
shares is effected based on receipt by the authorized broker or financial
institution of the shareholder's redemption request. An authorized broker or
financial institution may charge you a fee for this service.
BY MAIL. You may redeem your shares by sending a letter to FMB Funds,
Inc., P.O. Box 8526, Boston, Massachusetts 02266-8526. To be accepted, a letter
requesting redemption must include: (i) the Fund name and the registered name(s)
on the account from which you are redeeming shares, (ii) your account number,
(iii) the dollar amount of shares to be redeemed, (iv) the signatures of all
registered owners or authorized parties, and (v) a signature guarantee by a
member of a national securities exchange or a commercial bank or trust company
(a signature guarantee by a savings bank or a notary public is not acceptable),
provided that no signature guarantee is required if the amount to be redeemed is
less than $5,000. Corporations, partnerships, trusts or other legal entities
will be required to submit additional documentation.
TELEPHONE REDEMPTION BY CHECK. You may redeem your shares by calling the
Funds toll free at 800-453-4234. You should be prepared to give the telephone
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representative the following information: (i) your account number, TIN and the
registered name(s) on the account, (ii) the name of the Fund from which you are
redeeming shares, and (iii) the dollar amount of shares to be redeemed. The
Funds employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Funds fail to employ such reasonable procedures,
they may be liable for any loss, damage or expense arising out of any telephone
transactions purporting to be on a shareholder's behalf. In order to assure the
accuracy of instructions received by telephone, the Funds require some form of
personal identification prior to acting upon instructions received by telephone,
record telephone instructions and provide written confirmation to investors of
such transactions. Telephone redemption privileges are available unless you have
declined the privilege by checking the appropriate "no" box on the Purchase
Application.
TELEPHONE REDEMPTION BY WIRE. You may redeem your shares by contacting the
Funds by mail or telephone and instructing them to send a wire transmission to a
designated account at your personal bank. Wire redemptions for the Money Market
Fund generally will be transferred to the designated account on the day the
request is received provided that it is received by 12:00 noon (New York time).
Your instructions should include: (i) your account number, TIN and the
registered name(s) on the account, (ii) the name of the Fund from which you are
redeeming shares, (iii) the dollar amount of shares to be redeemed, and (iv)
confirmation of your designated bank name and account number. The Funds employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. If the Funds fail to employ such reasonable procedures, they may be
liable for any loss, damage or expense arising out of any telephone transactions
purporting to be on a shareholder's behalf. In order to assure the accuracy of
instructions received by telephone, the Funds require some form of personal
identification prior to acting upon instructions received by telephone, record
telephone instructions and provide written confirmation to investors of such
transactions. Wire redemption privileges are available unless you have declined
the privilege by checking the appropriate "no" box on your Purchase Application.
Your bank may charge you a fee for receiving a wire payment on your behalf. In
order to redeem by wire, a copy of a voided check of the account where proceeds
are to be wired must have been attached to the Purchase Application.
CHECKWRITING. A checkwriting ($500 minimum, no maximum) feature is
available with respect to the Money Market Fund. There are no limits on the
number of checks that may be written on an account. Checks are free and may be
obtained from the Distributor. It is not possible to use a check to close out
your account since income will accrue to your account daily from the time a
check is written through the time it clears.
The above-mentioned telephone, wire and checkwriting privileges are not
available for IRAs or trust accounts.
REDEMPTION OF SMALL ACCOUNTS. Due to the disproportionately higher cost of
servicing small accounts, each Fund reserves the right to redeem, on not less
than 30 days' notice, an account in a Fund that has been reduced by a
shareholder to $500 or
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less. However, if during the 30-day notice period the shareholder purchases
sufficient shares to bring the value of the account above $500, the redemption
will not occur.
REDEMPTION IN KIND. All redemptions of shares of the Funds shall be made
in cash, except that the commitment to redeem shares in cash extends only to
redemption requests made by each shareholder of a Fund during any 90-day period
of up to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of such period. This commitment is irrevocable without the prior
approval of the SEC and is a fundamental policy of the Funds that may not be
changed without shareholder approval. In the case of redemption requests by
shareholders in excess of such amounts, the Board of Directors reserves the
right to have the Funds make payment, in whole or in part, in securities or
other assets, in case of an emergency or any time a cash distribution would
impair the liquidity of a Fund to the detriment of the existing shareholders. In
this event, the securities would be valued in the same manner as the securities
of that Fund are valued. If the recipient were to sell such securities, he or
she would incur brokerage charges.
The redemption methods and procedures described above may be modified or
terminated at any time by the Funds. If the Funds terminate any redemption
methods or procedures, they will do so only after giving written notice to
shareholders. Redemption by mail will always be available to shareholders.
DIVIDENDS, DISTRIBUTIONS AND FEDERAL INCOME TAX
The following discussion is only a brief summary of some of the important
tax considerations affecting the Funds and their shareholders. No attempt is
made to present a detailed explanation of all federal, state and local income
tax considerations, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors are urged to consult
their own tax advisers with specific reference to their own tax situation.
The Funds intend to operate as "regulated investment companies" under the
Internal Revenue Code of 1986, as amended (the "Code"). If so qualified, each
Fund will not be subject to federal income taxes with respect to net investment
income (i.e., investment company taxable income as that term is defined in the
Code, without regard to the deduction for dividends paid) and net capital gain
(i.e., the excess of long-term capital gains over short-term capital losses), if
any, that is distributed to its shareholders, provided that a Fund distributes
each tax year (i) at least 90% of its net investment income, and (ii) at least
90% of the excess of its tax-exempt interest income net of certain deductions
allocable to such income. Each Fund will be subject to a 4% nondeductible excise
tax on its taxable income to the extent it does not meet certain distribution
requirements by the end of each calendar year. Each Fund intends to make
sufficient distributions to avoid application of this excise tax.
Except for tax-exempt dividends from the Michigan Tax-Free Bond Fund, all
dividends and capital gains dividends are taxable whether they are reinvested in
a Fund or received in cash, unless you are exempt from taxation or entitled to
tax deferral. Each year, you will be notified as to the amount and federal tax
status of all dividends paid during the prior year. Distributions of net capital
gains designated by a Fund as a capital gain dividend will be taxable as
long-term capital gains, regardless of how long a
26
<PAGE> 70
shareholder has held the Fund shares, and regardless of whether the
distributions are reinvested in additional shares or received in cash. Dividends
paid from a Fund's net investment income which includes a Fund's net realized
short-term capital gains, are taxable to shareholders as ordinary income.
If in any year a Fund should fail to qualify under Subchapter M of the Code
for tax treatment as a regulated investment company, the Fund would incur a
regular corporate federal income tax upon its taxable income for that year, and
distributions to shareholders would be taxable to such shareholders as ordinary
dividend income to the extent of the current and accumulated earnings and
profits of the Fund.
Generally, shareholders will be taxable on dividends or distributions in
the year of receipt; however, dividends declared in October, November or
December, payable to shareholders of record on a specified date in one of those
months and paid during the following January, will be treated as having been
distributed by the Fund (and received by the shareholders) on December 31 of the
year in which declared.
The Diversified Equity Fund will declare and pay as a dividend
substantially all of its net income quarterly. The Money Market Fund, the
Intermediate Government Income Fund and the Michigan Tax-Free Bond Fund will
declare dividends of substantially all of their net income daily and accrue and
pay those dividends monthly. Each Fund will distribute, at least annually,
substantially all net capital gains, if any, earned by such Fund. Each Fund will
inform shareholders of the amount and nature of all such income or gains.
Distributions will be reinvested in additional Fund shares based on the net
asset value at the close of business on the payment date of the distribution,
unless the shareholder elects in writing, not less than five business days prior
to the record date, to receive such distributions in cash. Dividends will be
paid within five business days after the end of the month in which they are
declared.
In the case of the Money Market Fund, shares purchased will begin earning
dividends on the day the purchase order is executed and shares redeemed will
earn dividends through the day prior to the date of redemption. Net investment
income of the Money Market Fund for a Saturday, Sunday or a holiday will be
declared as a dividend on the previous business day. In the case of the other
Funds that declare daily dividends, shares purchased will begin earning
dividends on the day after the purchase order is executed, and shares redeemed
will earn dividends through the day the redemption is executed. Investors who
redeem all or a portion of Fund shares prior to a dividend payment date will be
entitled on the next dividend payment date, to all dividends declared but unpaid
on those shares at the time of their redemption.
The redemption, sale or exchange of shares of one Fund for shares of
another is a taxable event and may result in a gain or loss. Gain or loss, if
any, recognized on the sale or other disposition of shares of a Fund will be
taxed as capital gain or loss if the shares are capital assets in the
shareholder's hands. Generally, a shareholder's gain or loss will be a long-term
gain or loss if the shares have been held for more than one year. If a
shareholder sells or otherwise disposes of shares of a Fund before holding them
for more than six months, any loss on the sale or other disposition of such
shares shall be
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<PAGE> 71
(i) treated as a long-term capital loss to the extent of any capital gain
dividends received by the shareholder with respect to such shares or (ii)
disallowed to the extent of any exempt-interest dividends received by the
shareholder with respect to such shares. A loss realized on a sale or exchange
of shares may be disallowed if other shares are acquired within a 61-day period
beginning 30 days before and ending 30 days after the date that the share are
disposed of.
If you have not furnished a certified correct TIN (generally your social
security number) or have not certified that withholding does not apply, or if
the Internal Revenue Service has notified the Fund that the TIN listed on your
account is incorrect according to their records or that you are subject to
backup withholding, federal law generally requires the Fund to withhold 31% from
any dividends and/or redemptions (including exchange redemptions). Backup
withholding is not an additional tax and any amounts withheld may be credited
against the shareholder's federal income tax liability; a refund may be obtained
from the Internal Revenue Service if withholding results in overpayment of
federal income taxes. Federal law also requires each Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain non-resident alien,
non-U.S. partnership, non-U.S. trust, non-U.S. estate and non-U.S. corporation
shareholder accounts. Certain non-resident aliens will be subject to non-
resident alien tax withholding. The amount withheld is dependent on the country
of citizenship. For more information, please contact FMB Funds at 800-453-4234.
Dividends and distributions from the Diversified Equity Fund, the Money
Market Fund and the Intermediate Government Income Fund may be subject to state
and local income taxes. Shareholders are advised to consult with their own tax
advisors about state and local tax matters.
THE MICHIGAN TAX-FREE BOND FUND. The Michigan Tax-Free Bond Fund intends
to qualify to pay "exempt-interest dividends," as that term is defined in the
Code, by holding at the end of each quarter of its taxable year at least 50% of
the value of its total assets in the form of obligations described in section
103(a) of the Code. Exempt-interest dividends are generally exempt from federal
income tax. Dividends from the Michigan Tax-Free Bond Fund will not be subject
to Michigan personal income taxes to the extent that such distributions qualify
as exempt-interest dividends and represent interest income attributable to
federally tax-exempt obligations of the State of Michigan and its political
subdivisions.
Although exempt-interest dividends may be excluded from a shareholder's
gross income for federal income tax purposes, a portion of the exempt-interest
dividends may be a specific preference item for purposes of determining the
shareholders liability (if any) under the federal alternative minimum tax under
the Code.
The exemption of interest income for federal income tax purposes and
Michigan personal income tax purposes may not result in similar exemptions under
the tax law of state and local authorities outside Michigan. In general, a state
exempts from state income tax only interest earned on obligations issued by that
state or its political subdivisions.
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<PAGE> 72
REGULATORY MATTERS
Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended, or any affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities, but do not
prohibit such a bank holding company or affiliate from acting as investment
adviser, administrator, transfer agent, or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of a customer. The Adviser, the Sub-Adviser and the Company believe that
the Adviser or the Sub-Adviser or any of their affiliates may perform the
investment advisory services for the Company described in this Prospectus,
without violation of such banking laws or regulations. However, future changes
in legal requirements relating to the permissible activities of banks and their
affiliates, as well as future interpretations of present requirements, could
prevent the Adviser, the Sub-Adviser or any of their affiliates from continuing
to perform investment advisory services for the Company.
If the Adviser, the Sub-Adviser or any of their affiliates were prohibited
from performing investment advisory services for the Company, it is expected
that the Company's Board of Directors would recommend to the Company's
shareholders that they approve new agreements with another entity or entities
qualified to perform such services and selected by the Board of Directors. The
Company does not anticipate that investors would suffer any adverse financial
consequences as a result of these occurrences.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state laws.
OTHER INFORMATION
CAPITALIZATION
The Company was organized as a Maryland corporation on September 20, 1991,
and currently consists of four separately managed series, each representing an
interest in one of the Funds described herein. The Board of Directors may
establish additional series in the future. The capitalization of the Company
consists of 10,000,000,000 shares of common stock with a par value of $0.001
each. When issued in accordance with the terms and procedures described in this
prospectus, shares of the Funds are fully paid, non-assessable and freely
transferable.
The Company's Board of Directors has authorized the Funds to issue multiple
classes of shares. This Prospectus relates only to the Institutional Class of
shares of the Fund. The Funds currently offer one other class of shares in
addition to the Institutional Class. The categories of investors that are
eligible to purchase shares may
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<PAGE> 73
be different for each class of a Fund's shares. In addition, other classes of a
Fund's shares may be subject to differences in sales charge arrangements,
ongoing distribution and service fee levels, and levels of certain other
expenses, which may effect the relative performance of the different classes of
each Fund's shares. Investors may call the Company at 1-800-453-4234 to obtain
additional information about other classes of shares of each Fund that are
offered. Any person entitled to receive compensation for selling or servicing
shares of the Funds may receive different levels of compensation with respect to
one class of shares over another.
VOTING
Shareholders have the right to vote on the election of Directors and on any
and all matters which, by law or the provisions of the Articles of Incorporation
of the Company, they may be entitled to vote. All shares of the Company have
equal voting rights and will be voted in the aggregate, and not by class or
series, except where voting by class or series is required by law or where the
matter involved affects only one class or series. The Company is not required to
hold annual meetings of the Funds' shareholders, and does not intend to do so,
in any fiscal year in which it is not required by law to elect directors. The
Directors are required to call a meeting for the purpose of considering the
removal of persons serving as Director, if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Company. See
"Capital Stock" in the SAI.
PERFORMANCE INFORMATION
A Fund may, from time to time, include yield and/or total return
information in advertisements or reports to shareholders or prospective
investors. The methods used to calculate the yield and/or total return of a Fund
are mandated by the SEC. See "Calculation of Yield and Total Return" in the SAI.
Quotations of "yield" for the Intermediate Government Income Fund or
Michigan Tax-Free Bond Fund are based on the investment income per share during
a particular 30-day (or one month) period (including dividends and interest),
less expenses accrued by such Fund during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period. Quotations of "yield"
for the Money Market Fund are based on the income received by a hypothetical
investment (less a pro-rata share of Fund expenses) over a particular seven-day
period, which is then "annualized" (i.e., assuming that the seven-day yield
would be received for 52 weeks, stated in terms of an annual percentage return
on the investment). Quotations of "effective yield" for the Money Market Fund
are calculated in a manner similar to that used to calculate yield, but include
the compounding effect of earnings on reinvested dividends.
The Michigan Tax-Free Bond Fund may also advertise its "taxable-equivalent
yield" or "taxable-equivalent effective yield." Taxable-equivalent yield or
taxable-equivalent effective yield is the yield or effective yield that an
investment, subject to federal and Michigan personal income taxes, would need to
earn in order to equal, on an after-tax basis, the yield or effective yield,
respectively, on an investment exempt
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<PAGE> 74
from such taxes (normally calculated assuming the maximum combined federal and
Michigan marginal tax rate). A taxable-equivalent yield or taxable-equivalent
effective yield quotation for the Michigan Tax-Free Bond Fund will be higher
than the yield or the effective yield quotation, respectively for the Michigan
Tax-Free Bond Fund.
A Fund may advertise its "total return." Total return will be calculated
for a Fund by subtracting (i) the public offering price of one share at the
beginning of the period, from (ii) the net asset value of all shares an investor
would own at the end of the period for the share held at the beginning of the
period (assuming reinvestment of all dividends and capital gain distributions),
and dividing by (iii) the public offering price per share at the beginning of
the period. Quotations of average annual total return are expressed in terms of
the average annual compounded rate of return of a hypothetical investment in a
Fund over periods of one, five and 10 years (up to the life of the Fund),
reflect the deduction of a proportional share of Fund expenses (on an annual
basis), and assume that all dividends and distributions are reinvested when
paid.
Performance quotations reflect only a Fund's performance during the
particular period on which the calculations are based. Performance quotations
for a Fund will vary based on changes in market conditions, the level of
interest rates and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
The Company's annual report to shareholders, which is available without
charge upon request, contains a discussion of the performance of the
Intermediate Government Income Fund, the Michigan Tax-Free Bond Fund and the
Diversified Equity Fund for the fiscal year ended November 30, 1996.
CUSTODY AND TRANSFER AGENCY
Bankers Trust Company, which has its principal business address at One
Bankers Trust Plaza, New York, New York 10006, serves as Custodian. SEI Fund
Resources acts as transfer agent to the Company. SEI Fund Resources has
sub-contracted certain of the services which it would otherwise be obligated to
provide, to State Street Bank and Trust Company.
EXPERTS
Price Waterhouse LLP serves as independent accountants for the Company.
Simpson Thacher & Bartlett (a partnership which includes professional
corporations) serves as counsel to the Company.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Distributor's Client
Service Department at 800-453-4234.
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<PAGE> 75
FMB FUNDS, INC.
Oaks, PA 19456
(800) 453-4234
INVESTMENT ADVISER
FMB--TRUST
One Financial Plaza
Holland, MI 49423
INVESTMENT SUB-ADVISER
FIRST MICHIGAN BANK CORPORATION
One Financial Plaza
Holland, MI 49423
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, PA 19456
ADMINISTRATOR
SEI FUND RESOURCES
Oaks, PA 19456
CUSTODIAN
BANKERS TRUST COMPANY
One Bankers Trust Plaza
New York, NY 10006
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
30 South Seventeenth Street
Philadelphia, PA 19103
LEGAL COUNSEL
SIMPSON THACHER & BARTLETT
425 Lexington Avenue
New York, NY 10017
<PAGE> 76
FMB FUNDS, INC.
TELEPHONE: 800/453-4234
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 28, 1997
FMB MONEY MARKET FUND
FMB INTERMEDIATE GOVERNMENT INCOME FUND
FMB MICHIGAN TAX-FREE BOND FUND
FMB DIVERSIFIED EQUITY FUND
FMB Funds, Inc. (the "Company") is a professionally managed, open-end,
series investment company. This Statement of Additional Information ("SAI")
contains information about both the "Consumer Service Class" and the
"Institutional Class" of all four of the Company's investment portfolios -- the
Money Market Fund, the Intermediate Government Income Fund, the Michigan
Tax-Free Bond Fund and the Diversified Equity Fund (each, a "Fund" and
collectively, the "Funds"). The investment objectives of each Fund are described
in the Prospectus. See "Investment Policies of the Funds."
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectus, dated March 28, 1997. All terms used in this SAI are defined
in the Prospectus will have the meanings assigned in the Prospectus. Copies of
the Prospectus may be obtained without charge by writing to SEI Fund Resources,
the Company's administrator or SEI Financial Services Company, the Company's
distributor, at Oaks, Pennsylvania 19456, or by calling the Funds at the
telephone number indicated above.
<PAGE> 77
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions............................................ 1
Additional Permitted Investment Activities......................... 2
Special Factors Affecting the Michigan Tax-Free
Bond Fund........................................................ 8
Management......................................................... 12
Rule 12b-1 Distribution Plan....................................... 15
Calculation of Yield and Total Return.............................. 17
Determination of Net Asset Value................................... 19
Portfolio Transactions............................................. 21
Federal Income Taxes............................................... 23
Capital Stock...................................................... 28
Principal Shareholders............................................. 29
Other Matters...................................................... 30
Custodian.......................................................... 30
Experts............................................................ 30
Financial Statements............................................... 31
Appendix A......................................................... A-1
</TABLE>
<PAGE> 78
INVESTMENT RESTRICTIONS
The Funds are subject to the following investment restrictions, all of
which are fundamental policies:
None of the Funds may:
(1) purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after the purchase
and as a result thereof, the value of any Fund's investments in that
industry would exceed 25% of the current value of such Fund's total assets,
provided that there is no limitation with respect to investments in (i)
tax-exempt Michigan Municipal Obligations (for the purpose of this
restriction, industrial development bonds and private activity bonds and
notes shall not be deemed tax-exempt Michigan Municipal Obligations if the
payments of principal and interest on such bonds or notes is the ultimate
responsibility of non-governmental issuers), (ii) obligations of the United
States Government, its agencies or instrumentalities, (iii) with respect to
the Money Market Fund, the obligations of domestic banks (for the purpose
of this restriction, domestic bank obligations do not include obligations
of U.S. branches of foreign banks or obligations of foreign branches of
U.S. banks);
(2) purchase or sell real estate (other than Michigan Municipal
Obligations or other securities secured by real estate or interests therein
or securities issued by companies that invest in real estate or interests
therein), commodities or commodity contracts; except that the Funds may
enter into financial futures contracts and may write call options and
purchase call and put options on financial futures contracts as generally
described in the Prospectus and this SAI;
(3) purchase securities on margin (except for short-term credits
necessary for the clearance of transactions and except for "margin"
payments in connection with financial futures contracts and options on
futures contracts) or make short sales of securities;
(4) underwrite securities of other issuers, except to the extent that
the purchase of Michigan Municipal Obligations or other permitted
investments directly from the issuer thereof or from an underwriter for an
issuer and the later disposition of such securities in accordance with the
Funds' investment program may be deemed to be an underwriting;
(5) invest more than 10% of the current value of its net assets in
repurchase agreements maturing in more than seven days, in fixed time
deposits that are subject to withdrawal penalties and that have maturities
of more than seven days, or in securities or other assets which the Board
of Directors determines to be illiquid securities or assets;
(6) acquire securities for the purpose of exercising control or
management over the issuers thereof; or
(7) issue senior securities, except that each Fund may borrow from
banks up to 10% of the current value of its net assets for temporary
purposes only in order to
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<PAGE> 79
meet redemptions, and these borrowings may be secured by the pledge of up
to 15% of the current value of its net assets (but new investments may not
be purchased while any such borrowing exists); and provided further that a
Fund may acquire when-issued securities, enter into other forward
commitments to acquire securities, and enter into or acquire financial
futures contracts and options thereon when the Fund's obligation
thereunder, if any, is "covered" (i.e., the Fund establishes a segregated
account in which it maintains liquid assets in an amount at least equal in
value to the Fund's obligations and marks to market daily such collateral).
None of the Funds except the Michigan Tax-Free Bond Fund may, as to 75% of
its total assets, purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, more than 5% of the value of its total assets would be invested in the
securities of any one issuer or, with respect to 100% of its assets, the Fund's
ownership would be more than 10% of the outstanding voting securities of such
issuer. The Money Market Fund may be subject to additional diversification
obligations pursuant to Rule 2a-7 under the Act.
The Funds are subject to the following non-fundamental policies:
(1) None of the Funds will purchase or retain securities of any issuer
if the officers or directors of the Fund or the Adviser owning beneficially
more than one-half of one percent (0.5%) of the securities of the issuer
together owned beneficially more than 5% of such securities.
(2) The Funds may not purchase interests, leases, or limited
partnership interests in oil, gas, or other mineral exploration or
development programs.
(3) No Fund may, with respect to more than 5% of its net assets,
invest in securities of issuers who, with their predecessors, have been in
existence less than three years, unless the securities are fully guaranteed
or insured by the U.S. Government, a state, commonwealth, possession,
territory, the District of Columbia or by an entity in existence at least
three years, or the securities are backed by the contract obligation of any
of the foregoing.
(4) Each of the Funds may invest in shares of other open-end,
management investment companies, subject to the limitations of the Act and
subject to such investments being consistent with the overall objective and
policies of the Fund making such investment, provided that any such
purchases will be limited to short-term investments in shares of
unaffiliated investment companies and the Adviser will waive its advisory
fees for that portion of the Fund's assets so invested, except when such
purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
ADDITIONAL PERMITTED INVESTMENT ACTIVITIES
UNRATED INVESTMENTS
Each Fund may purchase instruments that are not rated if such obligations
are of investment quality comparable to other rated investments that are
permitted to be
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<PAGE> 80
purchased by such Fund and, in the case of the Money Market Fund, if purchased
in accordance with the Fund's procedures adopted by the Company's Board of
Directors in accordance with Rule 2a-7 under the Act.
After purchase by a Fund, a security may cease to be rated or its rating
may be reduced below the minimum required for purchase by such Fund. Neither
event will require a sale of such security by such Fund, provided that, in the
case of the Money Market Fund, when a security ceases to be rated, the Fund's
Board of Directors determines that such security presents minimal credit risks,
and provided further that, when a security rating is downgraded below eligible
quality or no longer presents minimal credit risks, the Board of Directors finds
that the sale of such security would not be in the Fund's best interest. To the
extent the ratings given by national recognized statistical rating organizations
("NRSROs") may change as a result of changes in such organizations or their
rating systems, each Fund will attempt to use comparable ratings as standards
for investments in accordance with the investment policies contained in the
Prospectus and in this SAI. The ratings of NRSROs are more fully described in
the Appendix to this SAI.
LETTERS OF CREDIT
Each Fund may purchase debt obligations backed by an irrevocable letter of
credit of a bank, savings and loan association or insurance company which
assumes the obligation for payment of principal and interest in the event of
default by the issuer. Only banks, savings and loan associations and insurance
companies which, in the opinion of the Adviser are of investment quality
comparable to other permitted investments of such Fund, may be used for letter
of credit-backed investments.
MUNICIPAL BONDS
The Michigan Tax-Free Bond Fund may invest in municipal bonds. Municipal
bonds are principally classified as "general obligation" bonds, which are
secured by the pledge of the municipality's faith, credit and taxing power for
the payment of principal and interest, or as "revenue" bonds, which are payable
only from the revenues derived from a particular project or facility and
generally are dependent solely on a specific revenue source. Municipal bonds are
debt obligations issued to obtain funds for various public purposes, including
the construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets, and water and sewer
works. Other purposes for which municipal bonds may be issued include the
refunding of outstanding obligations and obtaining funds for general operating
expenses or to loan to other public institutions and facilities. Private
activity bonds are a specific type of revenue bond backed by the credit and
security of a private user. Certain types of private activity bonds are issued
by or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Assessment bonds, wherein a
specially created district or project area levies a tax (generally on its
taxable property) to pay for an improvement or project may be considered a
variant of either category. There are, of course, other
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<PAGE> 81
variations in the types of municipal bonds, both within a particular
classification and between classifications, depending on numerous factors.
OPTIONS ON SECURITIES AND INDICES OF SECURITIES
The Intermediate Government Income Fund and the Diversified Equity Fund may
purchase and write (i.e., sell) call options ("calls") and put options ("puts")
on securities and indices of securities. In the case of the Intermediate
Government Income Fund, such options will only involve debt securities and
indices of debt securities; in the case of the Diversified Equity Fund, such
options will only involve common stocks and indices of common stocks.
When a Fund purchases an option, it pays a premium in return for the right
to buy (in the case of a call) or sell (in the case of a put) the underlying
security or index at the exercise price at any time during the option period
(usually not more than nine months in the case of common stock or fifteen months
in the case of debt securities). If an option is not exercised or sold, it will
become worthless on its expiration date. If an option is purchased and becomes
worthless on its expiration date, the Fund will have lost the premium, which
will result in a reduction in the Fund's net asset value or total return.
When a Fund writes an option, it receives a premium and gives the purchaser
the right to buy (in the case of a call) or sell (in the case of a put) the
underlying security or index at any time during the option period at a fixed
exercise price, regardless of market price changes during the option period. If
a call written by a Fund is exercised, the Fund forgoes any gain from an
increase in the market price of the underlying security or index over the
exercise price; if a put written by a Fund is exercised, the Fund may be
required to buy the underlying security or index at a disadvantageous price
above the market price.
Any option written by a Fund will be "covered" throughout the life of the
option. A call is "covered" if the Fund (i) owns the optioned securities, (ii)
maintains in a segregated account with the Fund's custodian, cash, cash
equivalents, U.S. Government securities or other high grade debt securities with
a value sufficient to enable the Fund to purchase the optioned securities or
index or (iii) owns an offsetting call option. A put is "covered" if the Fund
(i) maintains in a segregated account with the Fund's custodian, cash, cash
equivalents, U.S. Government securities or other high grade debt securities with
a value equal to the exercise price of the put or (ii) owns an offsetting put
option.
Options on securities generally settle by physical delivery of the
underlying security. Frequently, rather than taking or making delivery of the
underlying security through the process of exercising the option, options are
closed by entering into offsetting purchase or sale transactions that do not
result in ownership of the new option. Index options are generally cash settled
for the net amount, if any, by which the option is "in-the-money" (that is, the
amount by which the value of the underlying securities exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option)
at the time the option is exercised.
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A Fund will realize a gain (or loss) on a closing purchase transaction with
respect to an option previously written by the Fund if the premium, plus
commission costs, paid to purchase the option is less (or greater) than the
premium, less commission costs, received on the sale of the option. A gain also
will be realized if an option which the Fund has written lapses unexercised,
because the Fund would retain the premium.
There can be no assurance that a liquid secondary market will exist at a
given time for any particular option.
Writing of options involves the risk that there will be no market in which
to effect a closing transaction. An exchange-traded option may be closed out
only on an exchange that provides a secondary market for an option of the same
series. Over-the-Counter ("OTC") options, which are purchased from or sold to
securities dealers, financial institutions or other parties, are not generally
terminable at the option of the writer and may be closed out only by negotiation
with the holder. There is also no assurance that a liquid secondary market on an
exchange will exist. In addition, because OTC options are issued in privately
negotiated transactions exempt from registration under the Securities Act of
1933, there is no assurance that a Fund will succeed in negotiating a closing
out of a particular OTC option at any particular time. If a Fund as covered call
option writer is unable to effect a closing purchase transaction in the
secondary market or otherwise, it will not be able to sell the underlying
security or securities, as the case may be, until the option expires or it
delivers the underlying security or securities, as the case may be, upon
exercise.
The staff of the Commission has taken the position that purchased options
not traded on registered domestic securities exchanges and the assets used as
cover for written options not traded on such exchanges are generally illiquid
securities. However, the staff has also opined that, to the extent a mutual fund
sells an OTC option to a primary dealer that it considers creditworthy and
contracts with such primary dealer to establish a formula price at which the
fund would have the absolute right to repurchase the option, the fund would only
be required to treat as illiquid the portion of the assets used to cover such
option equal to the formula price minus the amount by which the option is
in-the-money. Pending resolution of the issue, each Fund will treat such options
and, except to the extent permitted through the procedure described in the
preceding sentence, such assets as subject to such Fund's limitation on
investments in securities that are not readily marketable.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
If and to the extent authorized to do so, a Fund may trade futures
contracts or purchase or sell put and call options on those contracts. Futures
contracts are generally bought and sold on the commodities exchanges on which
they are listed with payment of initial and variation margin as described below.
The sale of a futures contract creates a firm obligation by a Fund, as seller,
to deliver to the buyer the specific type of financial instrument called for in
the contract at a specific future time for a specified price (or, with respect
to certain instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
5
<PAGE> 83
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract and obligates the seller to deliver that
position.
A Fund's use of futures contracts and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into for bona fide hedging or other appropriate portfolio management purposes.
Maintaining a futures contract or selling an option on a futures contract will
typically require a Fund to deposit with a financial intermediary, as security
for its obligations, an amount of cash or other specified assets ("initial
margin") that initially is from 1% to 10% of the face amount of the contract
(but may be higher in some circumstances). Additional cash or assets ("variation
margin") may be required to be deposited thereafter daily as the mark-to-market
value of the futures contract fluctuates. The purchase of an option on a futures
contract involves payment of a premium for the option without any further
obligation on the part of a Fund. If a Fund exercises an option on a futures
contract it will be obligated to post initial margin (and potentially variation
margin) for the resulting futures position just as it would for any futures
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction, but no assurance can be given that a
position can be offset prior to settlement or that delivery will occur.
No Fund will enter into a futures contract or option thereon for purposes
other than bona fide hedging if, immediately thereafter, the sum of the amount
of its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the net liquidation value of the Fund's assets; however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The value
of all futures contracts sold by a Fund (adjusted for the historical volatility
relationship between such portfolio and the contracts) will not exceed the total
market value of the Fund's securities.
There are several risks in connection with the use by the Funds of futures
contracts as a hedging device. One risk arises because of the imperfect
correlation between movements in the prices of the futures contracts and
movements in the prices of the underlying instruments which are the subject of
the hedge. The Funds will attempt to reduce this risk by selling, to the extent
possible, futures on interest rates (in the case of the Intermediate Government
Income Fund) or stock indexes (in the case of the Diversified Equity Fund) the
movements of which will, in the Adviser's judgment, have a significant
correlation with movements in the prices of the Funds' portfolio securities
sought to be hedged.
Successful use of the futures by each Fund for hedging purposes is also
subject to the Adviser's ability to predict correctly movements in the direction
of the underlying market. It is possible that, where a Fund has sold futures to
hedge its portfolio against a decline in the market, the value of the underlying
instruments on which the futures are written may advance and the value of
securities held in such Fund's portfolio may decline. If this occurs, such Fund
would lose money on the futures and also experience a decline in the value in
its portfolio securities. However, while this could occur to a certain degree,
the Adviser believes that over time the value of each Fund's portfolio will tend
to move in the same direction as the instruments underlying the futures
6
<PAGE> 84
contracts, which are intended to correlate to the price movements of the
portfolio securities sought to be hedged. It is also possible that, if a Fund
has hedged against the possibility of a decline in the market adversely
affecting securities held in its portfolio and securities prices increase
instead, such Fund will lose part or all of the benefit of the increased value
of those securities that it has hedged because it will have offsetting losses in
its futures positions. In addition, in such situations, if a Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures contracts and the
securities of the portfolio being hedged, the prices of futures contracts may
not correlate perfectly with movements in the underlying index due to certain
market distortions. First, all participants in the futures markets are subject
to margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions which would distort the normal relationship between the
underlying instruments and futures markets. Second, margin requirements in the
futures market are less onerous than margin requirements in the securities
market, and as a result the futures market may attract more speculators than the
securities market. Increased participation by speculators in the futures market
may also cause temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the imperfect correlation
between movements in the value of the underlying instruments and movements in
the prices of futures, even a correct forecast of general market trends by the
Adviser may still not result in a successful hedging transaction.
Interest Rate Futures Contracts and Options Thereon. The Intermediate
Government Income Fund may use interest rate futures contracts and options
thereon principally as a hedge against the effects of interest rate changes.
The Intermediate Government Income Fund may engage in interest rate futures
contract transactions involving (i) the sale of the designated debt securities
underlying the futures contract (i.e., short positions) to hedge the value of
securities held by the Intermediate Government Income Fund; (ii) the purchase of
the designated debt securities underlying the futures contract when the
Intermediate Government Income Fund holds a short position having the same
delivery month (i.e., a long position offsetting a short position); or (iii)
other strategies which the Adviser deems appropriate. If the market moves
favorably after the Intermediate Government Income Fund enters into an interest
rate futures contract as a hedge against anticipated adverse market movements,
the benefits from such favorable market movements on the value of the securities
so hedged will be offset in whole or in part, by a loss on the futures contract.
The Intermediate Government Income Fund may engage in a futures contract
sale to maintain the income advantage from continued holding of a long-term
security while endeavoring to avoid part or all of the loss in market value that
would otherwise accompany a decline in long-term security prices. If, however,
securities prices rise, the Intermediate Government Income Fund would realize a
loss in closing out its futures contract sales that would offset any increases
in prices of the long-term securities it holds.
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<PAGE> 85
Stock Index Futures Contracts and Options Thereon. The Diversified Equity
Fund may enter into stock index futures contracts and may purchase and sell
options thereon principally as a hedge against the effects of changes in the
price of stocks which it owns or wishes to purchase.
Options on stock index futures are similar to options on equity securities
except that options on index futures give the purchaser the right, in return for
the premium paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the option is a put),
at a specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the index futures contract, at exercise,
exceeds (in the case of a call) or is less than (in the case of a put) the
exercise price of the option on the stock index future. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index on which the
future is based on the expiration date. Purchasers of options who fail to
exercise their options prior to the exercise date suffer a loss of the premium
paid.
Segregation. The use of futures transactions by any Fund will require,
among other things, that such Fund segregate cash, liquid high grade debt
obligations or other assets with its custodian, or a designated sub-custodian,
to the extent its obligations are not otherwise "covered" through ownership of
the underlying securities. In general, either the full amount of any obligation
by the Funds to pay or deliver securities must be covered at all times by the
securities required to be delivered, or, subject to any regulatory restrictions,
an amount of cash or liquid high grade debt obligations at least equal to the
current amount of the obligation must be segregated with the custodian or
sub-custodian. The segregated assets cannot be sold or transferred unless
equivalent assets are substituted in their place or it is no longer necessary to
segregate them.
Risks Involving Futures Transactions. Transactions in futures contracts
and options thereon involve certain risks. The successful use of hedging
techniques also requires skills different from those necessary to select
portfolio securities. Commodity exchanges generally limit the amount of
fluctuation permitted in futures contract and option prices during a single
trading day, and the existence of such limits may prevent the prompt liquidation
of futures and option positions in certain cases. Inability to liquidate
positions in a timely manner could result in the Fund's incurring larger losses
than would otherwise be the case.
The degree to which a Fund may use futures contracts and options thereon
and options on securities may also be affected by certain provisions of the
Internal Revenue Code of 1986, as amended (the "Code").
SPECIAL FACTORS AFFECTING THE
MICHIGAN TAX-FREE BOND FUND
Because the Michigan Tax-Free Bond Fund will invest primarily in Michigan
Municipal Obligations, its investment performance is especially dependent on
Michi-
8
<PAGE> 86
gan's prevailing economic conditions. To provide somewhat greater investment
flexibility, the Michigan Tax-Free Bond Fund is a "non-diversified" fund and, as
such, is not required to meet any diversification requirements under the Act.
The Fund may use its ability as a non-diversified fund to concentrate its assets
in the securities of a smaller number of issuers which the Adviser deems to be
attractive investments, rather than invest in a larger number of securities
merely to satisfy non-tax diversification requirements. While the Adviser
believes that the ability to concentrate the investments of the Michigan
Tax-Free Bond Fund in particular issuers is an advantage when investing in
Michigan Municipal obligations, such concentration also involves a risk of loss
to the Michigan Tax-Free Bond Fund should the issuer be unable to make interest
or principal payments thereon or should the market value of such securities
decline. Investment in a non-diversified fund could, therefore, entail greater
risks than investment in a "diversified" fund, including a risk of greater
fluctuations in yield and share price. The Michigan Tax-Free Bond Fund must,
nevertheless, meet certain diversification tests to qualify as a "regulated
investment company" under the Code.
Obligations of issuers of Michigan Municipal Obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to the laws enacted in the future by Congress or the Michigan
legislatures or by referenda extending the time for payment of principal and/or
interest, or imposing other constraints upon enforcement of such obligations or
upon municipalities to levy taxes. There is also the possibility that, as a
result of legislation or other conditions, the power or ability of any issuer to
pay, when due, the principal of and interest on its Michigan Municipal
Obligations may be materially affected.
The information set forth below is derived from official statements
prepared in connection with the issuance of Michigan Municipal Obligations and
other sources that are generally available to investors. The information is
provided as general information intended to give a recent historical description
and is not intended to indicate future or continuing trends in the financial or
other positions of the State of Michigan. This information has not been
independently verified.
The budget of the State of Michigan is a complete financial plan and
encompasses the revenues and expenditures, both operating and capital outlay, of
the General Fund and special revenue funds. The budget is prepared on a basis
consistent with generally accepted accounting principles (GAAP). The State's
Fiscal Year begins on October 1 and ends on September 30. Under Michigan law,
the executive budget recommendations for any fund may not exceed the estimated
revenue thereof, and an itemized statement of estimated revenues in each
operating fund must be contained in an appropriation bill as passed by the
Legislature, the total of which may not be less than the total of all
appropriations made from the fund for that fiscal year. The Michigan
Constitution provides that proposed expenditures from and revenues of any fund
must be in balance and that any prior year's surplus or deficit in any fund must
be included in the succeeding year's budget for that fund.
The Michigan Constitution limits the amount of total revenues that may be
raised from taxes and other sources. State revenues (excluding federal aid and
revenues for
9
<PAGE> 87
payment of principal and interest on general obligation bonds) in any fiscal
year are limited to a fixed percentage of State personal income in the prior
calendar year or average of the prior three calendar years, whichever is
greater. The State may raise taxes in excess of the limit in emergency
situations.
The State of Michigan finances its operations through the State's General
Fund and special revenue funds. The General Fund receives revenues of the State
that are not specifically required to be included in the special revenue funds.
The majority of the revenues from the State taxes are from the State's personal
income tax, single business tax, use tax, and sales tax. In addition the State
levies various other taxes.
The Michigan Constitution limits State general obligation debt to (i)
short-term debt for State operating purposes, (ii) short and long-term debt for
the purpose of making loans to school districts, and (iii) long-term debt for
voter-approved purposes.
Short-term debt for operating purposes is limited to an amount not in
excess of 15 percent of undedicated revenues received during the preceding
fiscal year. Under the Michigan Constitution as implemented by statutory
provisions, such debt must be authorized by the State Administration Board and
issued only to meet obligations incurred pursuant to appropriation and must be
repaid during the fiscal year in which incurred. Such debt does not require
voter approval.
There are a number of state agencies, instrumentalities and political
subdivisions that issue municipal obligations, some of which may be conduit
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from obligations backed by
the full faith and credit of the State.
The State of Michigan is a party to various legal proceedings seeking
damages or injunctive or other relief. In addition to routine litigation,
certain of these proceedings could, if unfavorably resolved from the point of
view of the State, substantially affect State programs or finances. These
lawsuits involve programs generally in the areas of corrections, highway
maintenance, social services, tax collection, commerce and budgetary reductions
to school districts and governmental units and court funding. The ultimate
disposition of those proceeds is not determinable.
The principal sectors of Michigan's economy are manufacturing of durable
goods (including automobiles and components and office equipment), tourism and
agriculture. The State's economy continues to be dependent upon manufacturing,
particularly the automobile industry.
Layoffs and plant closings in the automotive industry may adversely affect
the State and there can be no assurance that Michigan's overall trend in recent
years of improved fiscal and economic conditions will continue. The value of
revenue or general obligations of local governments or authorities may be
independently affected by economic matters not directly impacting the State as a
whole.
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Municipal Notes. The Michigan Tax-Free Bond Fund may invest in municipal
notes. Municipal notes include, but are not limited to, tax anticipation notes
("TANs"), bond anticipation notes ("BANs"), revenue anticipation notes ("RANs")
and construction loan notes. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANs. An uncertainty in a municipal issuer's capacity to raise taxes as a
result of such things as a decline in its tax base or a rise in delinquencies
could adversely affect the issuer's ability to meet its obligations on
outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds
into a general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its obligations on its
BANs is primarily dependent on the issuer's adequate access to the longer term
municipal bond market and the likelihood that the proceeds of such bond sales
will be used to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as anticipated
revenues from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs. In addition, the
possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a result of
changing market evaluations of the ability of their issuers to meet the interest
and principal payments (i.e., credit risk). Such values will also change in
response to changes in the interest rates payable on new issues of municipal
securities (i.e., market risk). Should such interest rates rise, the values of
outstanding securities, including those held in the Fund's portfolio, will
decline and (if purchased at par value) they would sell at a
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<PAGE> 89
discount. If interest rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) they would sell at a premium.
Changes in the value of municipal securities held in the Fund's portfolio
arising from these or other factors will cause changes in the net asset value
per share of the Fund.
MANAGEMENT
Directors and Officers. The directors and executive officers of the
Company, and their principal occupations during the past five years, are listed
below. None of the directors is deemed to be an "interested person" of the
Company for purposes of the Act.
Valerie T. Ambrose, (Age 49), Director -- 602 Michigan Avenue,
Holland, Michigan 49423. Corporate Director, Holland Community Hospital.
William K. Anderson, (Age 56), Director -- Hope College, Holland,
Michigan 49423. Vice President for Business and Finance and Treasurer of
Hope College.
Timothy C. Morawski, (Age 50), Director -- 625 Hastings Avenue,
Holland, Michigan 49423. General Manager, Board of Public Works of the City
of Holland, Michigan.
Michael R. Mucciolo, (Age 56), Director -- 545 East 32nd Street,
Holland, Michigan 49423. Senior Vice President and Chief Financial Officer,
Beverage America, Inc.
David G. Lee, (Age 44), President and Chief Executive Officer -- Oaks,
Pennsylvania 19456. Senior Vice President of Fund Resources, a division of
SEI, since 1993. Vice President of Fund Resources (1991-1993). President,
GW Sierra Trust Funds before 1991.
Carol Rooney, (Age 32), Controller, Treasurer and Chief Financial
Officer -- Oaks, Pennsylvania 19456. Director of Fund Resources, a division
of SEI, since 1992. Senior Accountant with Price Waterhouse before 1992.
Kathryn L. Stanton, (Age 38), Vice President and Assistant
Secretary -- Oaks, Pennsylvania 19456. Vice President and Assistant
Secretary of SEI Investments Company, since 1994. Associate with Morgan,
Lewis & Bockius (1989-1994).
Sandra K. Orlow, (Age 43), Vice President and Assistant
Secretary -- Oaks, Pennsylvania 19456. Vice President and Assistant
Secretary of SEI Investments Company, since 1983.
Marc Cahn (Age 39), Vice President and Assistant Secretary -- Oaks,
Pennsylvania 19456. Vice President and Assistant Secretary of SEI
Investments Company since May 1996; Associate General Counsel, Barclays
Bank PLC, from 1994 to 1996; ERISA Counsel, First Fidelity Bancorporation,
prior to 1994.
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<PAGE> 90
Barbara A. Nugent (Age 39), Vice President and Assistant Secretary --
Oaks, Pennsylvania 19456. Vice President and Assistant Secretary of SEI
Investments Company since April 1996; Associate, Drinker, Biddle & Reath,
from 1994 to 1996; Assistant Vice President/Administration (1992 to 1993)
and Operations (1988 to 1992), Delaware Service Company, Inc.
Kevin P. Robins, (Age 35), Vice President and Assistant
Secretary -- Oaks, Pennsylvania 19456. Senior Vice President, General
Counsel and Secretary of SEI Investments Company since 1994. Vice President
and Assistant Secretary of SEI Investments Company (1992-1994). Associate
with Morgan, Lewis & Bockius (1988-1992).
Todd Cipperman, (Age 31), Vice President and Secretary -- Oaks,
Pennsylvania 19456. Vice President and Assistant Secretary of SEI
Investments Company since 1995. Associate with Dewey Ballantine
(1994-1995). Associate with Winston & Strawn (1991-1994).
As required by law, for as long as the Company has a Distribution Plan, the
selection and nomination of directors who are not "interested persons" of the
Company will be made by such disinterested directors. See "Rule 12b-1
Distribution Plan" in this SAI.
Directors of the Company who are not affiliated with the Distributor, the
Adviser or the Sub-Adviser receive from the Company an annual fee of $3,000 and
a fee for each Board of Directors and Board committee meeting attended of $500.
Directors who are affiliated with the Distributor, the Adviser or the
Sub-Adviser do not receive compensation from the Company but all directors are
reimbursed for all out-of-pocket expenses relating to attendance at meetings.
The following table sets forth certain information regarding the
compensation of the Funds' directors. No executive officer or person affiliated
with the Funds received compensation from the Funds for the fiscal year ended
November 30, 1996 in excess of $60,000.
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<PAGE> 91
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION TOTAL
OR COMPENSATION
RETIREMENT FROM THE
BENEFITS ESTIMATED COMPANY
AGGREGATE ACCRUED ANNUAL AND COMPANY
COMPENSATION AS PART BENEFITS COMPLEX
NAME OF PERSON FROM THE OF FUND UPON PAID TO
POSITION COMPANY EXPENSES RETIREMENT DIRECTORS
- --------------------------------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C>
Michael R. Mucciolo.............. $2,750 0 N/A $2,750
Director
Valerie T. Ambrose............... 2,500 0 N/A 2,500
Director
William K. Anderson.............. 2,750 0 N/A 2,750
Director
Timothy C. Morawski.............. 2,500 0 N/A 2,500
Director
</TABLE>
As of the date of this SAI, directors and officers of the Company as a
group beneficially owned less than 1% of the outstanding shares of the Company.
The Adviser. FMB-Trust acts as Adviser and First Michigan Bank Corporation
acts as Sub-Adviser to each of the Funds. The Advisory Agreement provides that
the Adviser shall furnish to the Funds investment guidance and policy direction
in connection with the daily portfolio management of each Fund. Pursuant to the
Advisory Agreement, the Adviser furnishes to the Board of Directors periodic
reports on the investment strategy and performance of each Fund.
The Adviser has agreed to provide to the Funds, among other things, money
market security and fixed-income research, and analysis and statistical and
economic data and information concerning interest rate and security market
trends, portfolio composition and credit conditions.
Pursuant to the Sub-Advisory Agreement and subject to the supervision of
the Adviser, the Sub-Adviser monitors approved lists of broker-dealers,
repurchase dealers and commercial paper issuers, obtains and analyzes
performance and market pricing information, and performs such other services as
delegated to it by the Adviser from time to time.
The Advisory Agreement and the Sub-Advisory Agreement will continue in
effect provided the continuance is approved annually (i) by the holders of a
majority of the respective Fund's outstanding voting securities (as defined in
the Act) or by the Company's Board of Directors and (ii) by a majority of the
directors of the Company who are not parties to the Advisory Agreement or
"interested persons" (as defined in the Act) of any such party. The Advisory
Agreement and the Sub-Advisory Agreement may be terminated on 60 days' written
notice by the Company or the Sub-Adviser as the case may be, and will terminate
automatically if assigned.
Prior to the reorganization of the investment advisory operations of the
Adviser, FMB Financial Advisory Services, Inc. served as investment adviser to
each of the Funds. For the fiscal years ended November 30, 1994, 1995 and 1996,
the Adviser (or
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<PAGE> 92
its predecessor) was entitled to (and waived) fees as follows: $273,307
($20,717), $396,490 ($0) and $448,312 ($0), respectively, for the Money Market
Fund; $154,951 ($154,951), $168,511 ($147,376) and $166,984 ($118,619),
respectively, for the Michigan Tax-Free Bond Fund; $553,698 ($24,878), $549,684
($0) and $531,263 ($0), respectively, for the Intermediate Government Income
Fund; and $445,283, ($0), $532,024 ($0) and $632,272 ($0), respectively, for the
Diversified Equity Fund.
Bankers Trust Company serves as custodian for each of the Funds. See
"Custodian."
Administrator and Distributor. The Company has retained SEI Fund Resources
(the "Administrator") as administrator on behalf of each of its Funds. Under the
Administration Agreement with the Company, the Administrator furnishes the
Company certain administrative services, other than investment advisory
services, necessary for each Fund's operations, including all regulatory
reporting, accounting services and all necessary office facilities, together
with those ordinary clerical and bookkeeping services that are not being
furnished by the Adviser. For the period March 23, 1996 through November 30,
1996, the Administrator earned fees of $184,851 for the Money Market Fund,
$159,985 for the Intermediate Term Government Income Fund, $88,213 for the
Michigan Tax-Free Bond Fund and $43,687 for the Diversified Equity Fund. For the
period December 1, 1995 through March 22, 1996, Furman Selz L.L.C., the
Company's prior administrator ("Furman Selz") earned fees of $62,760 for the
Money Market Fund, $71,645 for the Intermediate Term Government Fund, $31,513
for the Michigan Tax-Free Bond Fund and $40,543 for the Diversified Equity Fund.
During the fiscal years ended November 30, 1994, and November 30, 1995,
respectively, Furman Selz earned fees of $117,136 and $169,923 for the Money
Market Fund, $184,566 and $183,228 for the Intermediate Government Income Fund,
$42,368 and $45,958 for the Michigan Tax-Free Bond Fund and $68,292 and $79,824
for the Diversified Equity Fund.
The Company has entered into a Distribution Agreement with SEI Financial
Services Company (the "Distributor"), which acts as Distributor on behalf of
each of the Funds. Each of the Administrator and the Distributor is a
wholly-owned subsidiary of SEI Investments Company ("SEI"), a leading provider
of investment services to banks, institutional investors, investment advisers
and insurance companies.
RULE 12b-1 DISTRIBUTION PLAN
As described in the Prospectus, the Company has adopted, for the Consumer
Service Class of each of the Funds, a Distribution Plan under Section 12(b) of
the Act and Rule 12b-1 thereunder (the "Rule"). The Distribution Plan was
adopted by the Board of Directors, including a majority of the directors who
were not "interested persons" (as defined in the Act) of the Company and who had
no direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "Qualified Directors").
Under the Distribution Plan, each Fund may, with respect to its Consumer
Service Class, reimburse the Distributor monthly (subject to a limit of 0.35%
per
15
<PAGE> 93
annum of the average daily net assets of each Fund's Consumer Service Class,
except in the case of the Money Market Fund in which case the limit shall be
0.25% per annum of the daily net assets of the Fund's Consumer Service Class)
for costs and expenses of the Distributor in connection with the distribution of
Fund shares of the Consumer Service Class. These costs and expenses include: (i)
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising, (ii) expenses of sales
employees or agents of the Distributor, including salary, commissions, travel
and related expenses, (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares,
including promotional incentives and fees calculated with reference to the
average daily net asset value of shares held by shareholders who have a
brokerage or other service relationship with the broker-dealer or other
institution receiving such fees, (iv) costs of printing prospectuses and other
materials to be given or sent to prospective investors and (v) such other
similar services as the Board of Directors determines to be reasonably
calculated to result in the sale of shares of the Funds. The actual fee payable
to the Distributor shall, within such limit, be determined from time to time by
mutual agreement between the Company and the Distributor. The Distributor may
enter into selling agreements with one or more selling agents under which such
agents may receive compensation for distribution-related services from the
Distributor, including, but not limited to, commissions or other payments to
such agents based on the average daily net assets of Fund shares attributable to
them. The Distributor may retain any portion of the total distribution fee
payable under the Plan to compensate it for the distribution-related services
provided by it or to reimburse it for other distribution-related expenses.
The Distribution Plan will continue in effect from year to year if such
continuance is approved by (a) either the vote of a majority of the directors,
or the vote of a majority of the outstanding voting securities of the Company,
and (b) the Qualified Directors. Agreements related to the Distribution Plan
also must be approved by such vote of the directors and the Qualified Directors.
Such agreements will terminate automatically if assigned, and may be terminated
at any time, without payment of any penalty, by a vote of a majority of the
outstanding voting securities of the proper Fund. The Distribution Plan may not
be amended to increase materially the amounts payable thereunder by any Fund
without the approval of a majority of the outstanding voting securities of the
Fund, and no material amendment to the Distribution Plan may be made except by a
majority of both the directors of the Company and the Qualified Directors.
For the fiscal year ended November 30, 1996, the Distributor received the
following fees:
<TABLE>
<CAPTION>
FMB FMB FMB FMB
MONEY INTERMEDIATE MICHIGAN DIVERSIFIED
MARKET GOVERNMENT INCOME TAX-FREE FUND EQUITY
FUND FUND FUND FUND
------- ----------------- ------------- -----------
<S> <C> <C> <C> <C>
Amount Paid.......... 34,585 9,389 16,593 10,981
Amount Waived........ (16,222) (11,262) (19,637) (11,392)
</TABLE>
16
<PAGE> 94
CALCULATION OF YIELD AND TOTAL RETURN
As noted in the Prospectus, the Funds may advertise certain total return
information computed in the manner described in the Prospectus. As and to the
extent required by the SEC, an average annual compound rate of return ("T") will
be computed by using the value at the end of a specified period ("ERV") of a
hypothetical initial investment ("P") over a period of years ("n") according to
the following formula: P(1+T)n = ERV. In addition, as indicated in the
Prospectus, the Funds may also, at times, calculate total return based on net
asset value per share (rather than the public offering price), in which case the
figures would not reflect the effect of any sales loads that would have been
paid by an investor, or based on the assumption that a sales load other than the
maximum loads (reflecting a Volume Discount) was assessed, provided that total
return data derived pursuant to the calculation described above also are
presented.
As indicated in the Prospectus, the Funds may advertise certain yield
information.
Current yield for the Money Market Fund will be calculated based on the net
changes, exclusive of capital changes, over a seven-day period, in the value of
a hypothetical pre-existing account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return,
and then multiplying the base period return by (365/7) with the resulting yield
figure carried to at least the nearest hundredth of one percent.
Effective yield for the Money Market Fund is calculated by determining the
net changes, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding one, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result. Yield for
the Intermediate Government Income Fund and the Michigan Tax-Free Bond Fund will
be calculated based on a 30-day (or one month) period, computed by dividing the
net investment income per share earned during the period by the maximum offering
price per share on the last day of the period, according to the following
formula: YIELD = 2[((a-b) divided by (c*d)+1)6-1], where a = dividends and
interest earned during the period: b = expenses accrued for the period (net of
reimbursements); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period. The net investment income of each
of such Funds includes actual interest income, plus or minus amortized purchase
discount (which may include original issue discount) or premium, less accrued
expenses. Realized and unrealized gains and losses on portfolio securities are
not included in such Funds' net investment income for this purpose. For purposes
of sales literature, such Funds' yield also may be calculated on the basis of
the net asset value per share rather than the
17
<PAGE> 95
public offering price, provided that the yield data derived pursuant to the
calculation described above also are presented.
For the seven-day period ending November 30, 1996 the Money Market Fund's
yield and effective yield were 4.79% and 4.89%, respectively. For the 30-day
period ended November 30, 1996, the Intermediate Government Income Fund's yield
was 5.50%.
The tax-equivalent yield and the tax-equivalent effective yield for the
Michigan Tax-Free Bond Fund are computed by dividing that portion of the yield
or effective yield, respectively of the Fund which is tax-exempt by one minus a
stated income tax rate and adding the product to that portion, if any, of the
yield or effective yield of the Fund that is not tax-exempt.
For the 30-day period ended November 30, 1996, the Fund's tax-exempt yield
and tax-equivalent effective yield were 4.37% and 7.57%, respectively.
The total return for the Diversified Equity Fund will be calculated by
subtracting (i) the public offering price (which includes the maximum sales
load) of one share at the beginning of the period, from (ii) the net asset value
of all shares an investor would own at the end of the period for the share held
at the beginning of the period (assuming reinvestment of all dividends and
capital gain distributions), and dividing by (iii) the public offering price per
share at the beginning of the period. The resulting percentage indicates the
positive or negative rate of return that an investor would have earned from
reinvested dividends and capital gain distributions and changes in share price
during the period. The Diversified Equity Fund may also, at times, calculate
total return based on net asset value per share (rather than the public offering
price), in which case the figures would not reflect the effect of any sales
loads that would have been paid by an investor, or by assuming that a sales load
other than the maximum sales load is assessed, provided that total return data
derived pursuant to the calculation described above are also presented.
For the fiscal year ended November 30, 1996 and for the period December 2,
1991 through November 30, 1996, the average annual total returns for the
Diversified Equity Fund were as follows:
<TABLE>
<CAPTION>
DECEMBER 2, 1991
YEAR ENDED THROUGH
NOVEMBER 30, 1996 NOVEMBER 30, 1996
----------------- -----------------
<S> <C> <C>
Institutional Class............. 22.58% 13.06%
Consumer Service Class.......... 22.44% 12.08%
</TABLE>
The yield or total return for each Fund will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and does not provide a basis for determining future yield or
total return since it is based on historical data. Yield and total return are
functions of portfolio quality, composition, maturity and market conditions as
well as the expenses allocated to the Fund.
18
<PAGE> 96
In addition, investors should recognize that changes in the net asset
values of shares of a Fund will affect the yield of such Funds for any specified
period, and such changes should be considered together with the Fund's yield in
ascertaining the Fund's total return to shareholders for the period. Yield and
total return information for the Funds may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with investment
alternatives. The yield or total return of a Fund, however, may not be
comparable to the yields from investment alternatives because of differences in
the foregoing variables and differences in the methods used to value portfolio
securities, compute expenses and calculate yield or total return.
From time to time, the Company may quote the Funds' performance in
advertising and other types of literature as compared to the performance of the
S&P Index, the Dow Jones Industrial Average or any other commonly quoted index
of common stock prices. The S&P Index and the Dow Jones Industrial Average are
unmanaged indices of selected common stock prices. The Funds' performance also
may be compared to those of other mutual funds having similar objectives. This
comparative performance could be expressed as a ranking prepared by Lipper
Analytical Services, Inc., an independent service which monitors the performance
of mutual funds, or, with respect to the Money Market Fund, as a comparison with
other money market funds rated by Donoghue's Money Fund Report, a reporting
service on mutual funds.
The Fund's comparative performance for such purposes may be calculated by
relating net asset value per share at the beginning of a stated period to the
net asset value of the investment, assuming reinvestment of all gains,
distributions and dividends paid, at the end of the period. Any such comparisons
may be useful to the investors who wish to compare a Fund's past performance
with that of its competitors. Of course, past performance cannot be a guarantee
of future results.
The Company also may discuss in advertising and other types of literature
that a Fund has been assigned a rating by a nationally recognized statistical
rating organization ("NRSRO"), such as Standard & Poor's Corporation. Such
rating would assess the creditworthiness of the investments held by the Fund.
The assigned rating would not be a recommendation to purchase, sell or hold the
Fund's shares since the rating would not comment on the market price of the
Fund's shares or the suitability of the Fund for a particular investor. In
addition, the assigned rating would be subject to change, suspension or
withdrawal as a result of changes in, or unavailability of, information relating
to the Fund or its investments. The Company may compare a Fund's performance
with other investments which are assigned ratings by NRSROs. Any such
comparisons may be useful to investors who wish to compare the Fund's past
performance with other rated investments.
DETERMINATION OF NET ASSET VALUE
Net asset value per share for each Fund is determined by the Administrator
of the Fund's assets on each day the New York Stock Exchange is open for
trading.
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<PAGE> 97
As indicated under "Fund Share Valuation" in the Prospectus, the Money
Market Fund uses the amortized cost method to determine the value of its
portfolio securities pursuant to Rule 2a-7 under the Act. The amortized cost
method involves valuing a security at its cost and amortizing any discount or
premium over the period until maturity, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method provides
certainty in valuation, it may result in periods during which the value, as
determined by amortized cost, is higher or lower than the price that the Fund
would receive if the security were sold. During these periods the yield to a
shareholder may differ somewhat from that which could be obtained from a similar
fund that uses a method of valuation based upon market prices. Thus, during
periods of declining interest rates, if the use of the amortized cost method
resulted in a lower value of the Money Market Fund's portfolio on a particular
day, a prospective investor in either Fund would be able to obtain a somewhat
higher yield than would result from investment in a fund using solely market
values, and existing shareholders of the Fund would receive correspondingly less
income. The converse would apply during periods of rising interest rates.
Rule 2a-7 provides that in order to value its portfolios using the
amortized cost method, the Money Market Fund must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase securities having
remaining maturities (as defined in Rule 2a-7) of thirteen months or less and
invest only in Eligible Securities determined by the Board of Directors to
present minimal credit risks. The maturity of an instrument is generally deemed
to be the period remaining until the date when the principal amount thereof is
due or the date on which the instrument is to be redeemed. However, Rule 2a-7
provides that the maturity of an instrument may be deemed shorter in the case of
certain instruments, including certain variable and floating rate instruments
subject to demand features. Pursuant to the Rule, the Board is required to
establish procedures designed to stabilize, to the extent reasonably possible,
the Fund's price per share as computed for the purpose of sales and redemptions
at $1.00. Such procedures include review of the Fund's portfolio holdings by the
Board of Directors, at such intervals as it may deem appropriate, to determine
whether the Fund's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The extent of
any deviation will be examined by the Board of Directors. If such deviation
exceeds 1/2 of 1%, the Board will promptly consider what action, if any, will be
initiated. In the event the Board determines that a deviation exists that may
result in material dilution or other unfair results to investors or existing
shareholders, the Board will take such corrective action as it regards as
necessary and appropriate, including the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends or establishing a net asset value per share by
using available market quotations.
Securities of the Intermediate Government Income Fund, the Michigan
Tax-Free Bond Fund and the Diversified Equity Fund for which market quotations
are readily available are valued at latest sale prices. In the absence of any
sale of such securities on the valuation date, the valuations are based on
latest quoted bid prices. Futures contracts, options listed on a national
exchange and other over-the-counter securities are valued at the last sale price
on the exchange on which they are traded at the close
20
<PAGE> 98
of the exchange, or, in the absence of any sale on the valuation date, at latest
quoted bid prices. Options not listed on a national exchange are valued at
latest quoted bid prices. Debt securities maturing in 60 days or less are valued
at amortized cost. Notwithstanding the above, the Funds may determine the market
value of individual portfolio securities by using prices provided by one or more
professional independent pricing services to determine reliable market
quotations for securities held by a Fund. Prices provided by an independent
pricing service may be determined without exclusive reliance on bid or last sale
prices and may take into account appropriate factors such as institutional-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data. All other
securities and other assets of the Funds for which current market quotations are
not readily available are valued at fair value as determined in good faith by
the Company's Board of Directors and in accordance with procedures adopted by
the Board of Directors.
With respect to options contracts, the premium received is recorded as an
asset and equivalent liability, and thereafter the liability is adjusted to the
market value of the option determined in accordance with the preceding
paragraph. The premium paid for an option purchased by a Fund is recorded as an
asset and subsequently adjusted to market value.
PORTFOLIO TRANSACTIONS
Total brokerage commissions paid by the Diversified Equity Fund for the
fiscal years ended November 30, 1994, 1995 and 1996 amounted to $78,477, $42,177
and $33,086, respectively.
The Company has no obligation to deal with any broker/dealer or group of
dealers in the execution of transactions in portfolio securities. Subject to
policies established by the Company's Board of Directors, the Adviser is
responsible for each Fund's portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Company to obtain the
best results taking into account the broker/dealer's general execution and
operational facilities, the type of transaction involved and other factors.
While the Adviser generally seeks reasonably competitive spreads or commissions,
the Funds will not necessarily be paying the lowest spread or commission
available.
The Adviser may, in circumstances in which two or more broker/dealers are
in a position to offer comparable results for a Fund portfolio transaction, give
preference to a broker/dealer that has provided statistical or other research
services to the Adviser. By allocating transactions in this manner, the Adviser
is able to supplement its research and analysis with the views and information
of securities firms. Information so received may be in addition to, and not in
lieu of, the services required to be performed by the Adviser under the Advisory
Agreements, and the expenses of the Adviser will not necessarily be reduced as a
result of the receipt of this supplemental research information. Furthermore,
research services furnished by broker/dealers through which the Adviser places
securities transactions for a Fund may be used by the Adviser in servicing its
other accounts, and not all of these services may be used by the Adviser in
connection with advising the Funds. In so allocating portfolio transactions, the
Adviser may, in compliance with Section 28(e) of the Securities Exchange Act of
21
<PAGE> 99
1934, cause the Company to pay an amount of commission that exceeds the amount
of commission that another broker/dealer would have charged for effecting the
same transaction.
Except in the case of equity securities purchased by the Diversified Equity
Fund, purchases and sales of portfolio securities usually will be principal
transactions. Portfolio securities normally will be purchased or sold from or to
dealers serving as market makers for the securities at a net price. Each of the
Funds also may purchase portfolio securities in underwritten offerings and may
purchase securities directly from the issuer. Generally, Michigan Municipal
Obligations, taxable money market securities and other debt obligations are
traded on a net basis and do not involve brokerage commissions. The costs
associated with executing a Fund's portfolio securities transactions will
consist primarily of dealer spreads and underwriting commissions. Under the Act,
persons affiliated with the Company are prohibited from dealing with the Company
as a principal in the purchase and sale of securities unless an exemptive order
allowing such transactions is obtained from the SEC or an exemption is otherwise
available. Any of the Funds may purchase obligations from underwriting
syndicates of which the Distributor (or its affiliate) is a member under certain
conditions in accordance with the provisions of a rule adopted under the Act and
in compliance with procedures adopted by the Board of Directors.
Purchases and sales of equity securities for the Diversified Equity Fund
typically are effected through brokers who charge a negotiated commission for
their services. Orders may be directed to any broker including, to the extent
and in the manner permitted by applicable law, the Distributor or its
affiliates. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. In underwritten offerings, securities are purchased at a fixed
price that includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount.
In placing orders for portfolio securities of the Diversified Equity Fund,
the Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that the Adviser will seek
to execute each transaction at a price and commission, if any, that provide the
most favorable total cost or proceeds reasonably attainable in the
circumstances. While the Adviser will generally seek reasonably competitive
spreads or commissions, the Diversified Equity Fund will not necessarily be
paying the lowest spread or commission available. Commission rates are
established pursuant to negotiations with the broker based on the quality and
quantity of execution services provided by the broker in the light of generally
prevailing rates. The allocation of orders among brokers and the commission
rates paid are reviewed periodically by the Board of Directors.
Portfolio Turnover. Because the portfolio of the Money Market Fund
consists of securities with relatively short-term maturities, this Fund can
expect to experience high portfolio turnover. A high portfolio turnover rate
should not adversely affect the Money Market Fund, however, because the
portfolio securities will in most cases be held to maturity and will not be
resold. Also, it is not anticipated that this Fund will incur
22
<PAGE> 100
brokerage commissions in connection with any of its portfolio transactions.
Since securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the Money Market Fund is expected
to report a portfolio turnover rate approximating zero.
For the fiscal years ended November 30, 1994, 1995 and 1996 the portfolio
turnover rate for the Michigan Tax-Free Bond Fund was 22%, 35% and 16%
respectively, the Intermediate Government Income Fund was 20%, 27% and 16%,
respectively, and the Diversified Equity Fund was 49%, 20% and 9%, respectively.
The portfolio turnover rate will not be a limiting factor when the Adviser deems
portfolio changes appropriate.
FEDERAL INCOME TAXES
The Prospectus describes generally the tax treatment of dividends and
distributions made by the Company. This section of the Statement of Additional
Information includes additional information concerning federal income taxes.
Qualification by a Fund as a "regulated investment company" under the
Internal Revenue Code (the "Code") requires, among other things, that (a) at
least 90% of a Fund's annual gross income be derived from interest, payments
with respect to securities loans, dividends and gains from the sale or other
disposition of stock or securities, or foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies;
(b) the Fund derives less than 30% of its gross income from gains from the sale
or other disposition of any of the following held for less than three months:
stock, securities, options, futures, certain forward contracts, or foreign
currencies (or any options, futures or forward contracts on foreign currencies,
but only if such currencies are not directly related to a Fund's principal
business of investing in stock or securities) (the "30% limitation"); securities
or options thereon held for less than three months; and (c) the Fund diversifies
its holdings so that, at the end of each quarter of the taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
government securities, securities of other regulated investment companies and
other securities (except that such other securities must be limited in respect
of any one issuer to an amount not greater than 5% of the Fund's assets and 10%
of the outstanding voting securities of such issuer), and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities and the securities of other regulated
investment companies), or of two or more issuers which the taxpayer controls and
which are determined to be engaged in the same or similar trades or businesses
or related trades or businesses. As a regulated investment company, a Fund will
not be subject to federal income tax on its net investment income and net
capital gains distributed to its shareholders, provided that it distributes to
its shareholders at least 90% of its net investment income and tax-exempt income
earned in each year.
Under the Code, a non-deductible excise tax of 4% is imposed on the excess
of a regulated investment company's "required distribution" for the calendar
year ending
23
<PAGE> 101
within the regulated investment company's taxable year over the "distributed
amount" for such calendar year. The term "required distribution" means the sum
of (i) 98% of ordinary income for the calendar year, (ii) 98% of capital gain
net income (both long term and short term) for the one year period ending on
October 31 (as though the one year period ending on October 31 were the
regulated investment company's taxable year), and (iii) the sum of any untaxed,
undistributed net investment income and capital gain net income of the regulated
investment company for prior periods. The term "distributed amount" generally
means the sum of (i) amounts actually distributed by the regulated investment
company from its current year's ordinary income and capital gain net income and
(ii) any amount on which the regulated investment company pays income tax for
the year. This excise tax will not apply to tax-exempt income of the Michigan
Tax-Free Bond Fund. For this purpose, any income or gain retained by a Fund that
is subject to tax will be considered to have been distributed by year-end. In
addition, dividends and distributions declared payable as of a date in October,
November or December of any calendar year are deemed under the Code to have been
received by the shareholders on December 31 of that calendar year if the
dividend is actually paid in the following January. Such dividends will,
accordingly, be subject to income tax for the year in which the record date
falls. Each Fund intends to distribute substantially all of its net investment
income and net capital gains and, thus, expects not to be subject to the excise
tax.
Income received by the Diversified Equity Fund from sources within foreign
countries may be subject to withholding and other taxes imposed by such
countries. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. The Diversified Equity Fund intends to elect, if
it is eligible to do so under the Code, to "pass-through" to its shareholders
the amount of foreign taxes it has paid during the taxable year. If such an
election is made by the Fund, each shareholder of the Fund would be required to
include in gross income the taxable dividends received by him and the amount of
his pro rata share of those foreign taxes paid by the Fund. Each shareholder
would be entitled either to deduct (as an itemized deduction) his pro rata share
of the foreign taxes in computing his taxable income or to use it (subject to
limitations) as a foreign tax credit against his U.S. Federal income tax
liability. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Each shareholder will be notified within 60 days
after the close of the Diversified Equity Fund's taxable year whether the
foreign taxes paid by the Fund will "pass-through" for that year. Because not
more than 50% of the value of the total assets of the other Funds is expected to
consist of securities of foreign issuers, these Funds will not be eligible to
elect to "pass-through" foreign tax credits to shareholders.
A capital gains dividend will be a return of invested capital to the extent
the net asset value of an investor's shares is thereby reduced below his or her
cost, even though the distribution will be taxable to the shareholder. A
redemption of shares by a shareholder under these circumstances could result in
a capital loss for federal tax purposes.
24
<PAGE> 102
It is anticipated that a portion of the dividends paid by the Diversified
Equity Fund will qualify for the dividends-received deduction available to
corporations. The Fund is required to notify shareholders of the amount of
dividends which will qualify for the deduction within 60 days of the close of
the Fund's taxable year. The dividends paid by the other Funds are not expected
to qualify.
If a shareholder exchanges or otherwise disposes of shares of a Fund within
90 days of having acquired such shares, and if, as a result of having acquired
those shares, the shareholder subsequently pays a reduced sales load for shares
of a Fund, the sales load previously incurred acquiring the Fund's shares shall
not be taken into account (to the extent such previous sales loads do not exceed
the reduction in sales loads) for the purpose of determining the amount of gain
or loss on the exchange, but will be treated as having been incurred in the
acquisition of such other shares.
Any loss realized on a redemption or exchange of shares of a Fund will be
disallowed to the extent shares are reacquired within the 61-day period
beginning 30 days before and ending 30 days after the day the shares are
disposed.
If an option written by a Fund lapses or is terminated through a closing
transaction, such as a repurchase by the Fund of the option from its holder, the
Fund will realize a short-term capital gain or loss, depending on whether the
premium income is greater or less than the amount paid by the Fund in the
closing transaction. If securities are sold by a Fund pursuant to the exercise
of a call option written by it, such Fund will add the premium received to the
sale price of the securities delivered in determining the amount of gain or loss
on the sale. If securities are purchased by a Fund pursuant to the exercise of a
put option written by it, such Fund will subtract the premium received from its
cost basis in the securities purchased. The 30% limitation may limit the Fund's
ability to write options.
The amount of any realized gain or loss on closing out a forward contract
will generally result in a realized capital gain or loss for tax purposes. Under
Code Section 1256, certain forward foreign currency contracts held by a Fund at
the end of a fiscal year will be required to be "marked to market" for federal
income tax purposes, that is, deemed to have been sold at market value. Any gain
or loss recognized with respect to forward currency contracts is considered to
be 60% long term capital gain or loss and 40% short term capital gain or loss,
without regard to the holding period of the contract. Code Section 988 also
applies to forward foreign currency contracts. Under Section 988, each foreign
currency gain or loss is generally computed separately and treated as ordinary
income or loss. In the case of overlap between Section 1256 and 988, special
provisions determine the character and timing of any income, gain or loss. The
Funds will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.
If a Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" ("PFIC"), the Fund may be subject to U.S.
federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional charges in the nature of
interest may be imposed on either the
25
<PAGE> 103
Fund or its shareholders in respect of deferred taxes arising from such
distributions or gains. If the Fund were to invest in a PFIC and elected to
treat the PFIC as a "qualified electing fund" under the Code, in lieu of the
foregoing requirements, the Fund might be required to include in income each
year a portion of the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the Fund, and such amounts would be
subject to the 90% and calendar year distribution requirements described above.
Shareholders will be notified annually by the Company as to the Federal tax
status of distributions made by the Fund(s) in which they invest. Depending on
the residence of the shareholder for tax purposes, distributions also may be
subject to state and local taxes. Special tax treatment, including a penalty on
certain pre-retirement distributions, is accorded to accounts maintained as
IRAs. Shareholders should consult their own tax advisors as to the Federal,
state and local tax consequences of ownership of shares of the Funds in their
particular circumstances.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments, including redemption payments, paid to
certain non-corporate shareholders who do not furnish their correct taxpayer
identification number (in the case of individuals, their social security number)
and certain certifications, or who are otherwise subject to backup withholding.
Foreign Shareholders. Under the Code, distributions of net investment
income by a Fund to a nonresident alien individual, nonresident alien fiduciary
a trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax (at a rate of 30% or a
lower treaty rate). Withholding will not apply if a dividend paid by a Fund to a
foreign shareholder is "effectively connected" with a U.S. trade or business, in
which case the reporting and withholding requirements applicable to U.S.
citizens or domestic corporations will apply. Distributions of net capital gains
are not subject to tax withholding, but in the case of a foreign shareholder who
is a nonresident alien individual, such distributions ordinarily will be subject
to U.S. income tax at a rate of 30% if the individual is physically present in
the U.S. for more than 182 days during the taxable year.
Investors should be aware that the investments to be made by the Funds may
involve sophisticated tax rules (such as the original issue discount, marked to
market and real estate mortgage investment conduit ("REMIC") rules) that would
result in income or gain recognition by the Funds without corresponding current
cash receipts. Although the Funds will seek to avoid significant noncash income,
such noncash income could be recognized by the Funds, in which case a Fund may
distribute cash derived from other sources in order to meet the minimum
distribution requirements described above.
SPECIAL TAX CONSIDERATIONS FOR THE MICHIGAN TAX-FREE BOND FUND.
Federal -- The portion of total dividends paid by the Michigan Tax-Free
Bond Fund with respect to any taxable year that qualifies for exclusion from
gross income ("exempt-interest dividends") will be the same for all shareholders
receiving dividends
26
<PAGE> 104
during such year. In order for the Michigan Tax-Free Bond Fund to pay exempt-
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the aggregate value of Michigan Tax-Free Bond Fund assets must
consist of securities exempt from taxation under Section 103 of the Code. Not
later than 60 days after the close of its taxable year, the Michigan Tax-Free
Bond Fund will notify each shareholder of the portion of the dividends paid with
respect to such taxable year which constitutes exempt-interest dividends. The
aggregate amount of dividends so designated cannot exceed the excess of the
amount of interest excludable from gross income received by such Fund during the
taxable year over any amounts disallowed as deductions under Sections 265 and
171(a)(2) of the Code. Distributions of capital gains and market discount earned
on tax-exempt obligations will not qualify as tax-exempt income. Deductions for
interest expense incurred (or deemed incurred) to acquire or carry shares of the
Michigan Tax-Free Bond Fund may be subject to limitations that reduce or
eliminate such deductions.
Under the Omnibus Budget Reconciliation Act of 1993, all or a portion of
the Fund's gain from the sale or redemption of tax-exempt obligations acquired
after April 30, 1993 attributable to market discount will be treated as ordinary
income rather than capital gain. This provision may increase the amount of
ordinary income dividends received by shareholders.
Shares of the Michigan Tax-Free Bond Fund generally would not be suitable
for tax exempt institutions or tax deferred retirement plans (e.g., plans
qualified under Section 401 of the Code, Keogh-type plans and individual
retirement accounts). Such retirement plans would not gain any benefit from the
tax exempt nature of the Fund's dividends because such dividends ultimately
would be taxable to beneficiaries when distributed to them. In addition, the
Fund may not be an appropriate investment for entities which are "substantial
users" of facilities financed by industrial development bonds or "related
persons" thereof. "Substantial users" is defined under the U.S. Treasury
Regulations to include non-exempt persons who regularly use a part of such
facilities in their trade or businesses and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, or who occupy more
than 5% of the usable area of such facilities or for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired. "Related
Persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.
In addition, any loss realized by a shareholder upon the sale or redemption
of shares of a Fund held less than six months is disallowed to the extent of any
exempt-interest dividends received by the shareholder.
Michigan -- If at the close of each quarter of its taxable year, the
Michigan Tax-Free Bond Fund qualifies to pay exempt-interest dividends, that
portion of such exempt-interest dividends attributable to interest on federally
tax-exempt obligations of the State of Michigan and its political subdivisions
will be exempt from Michigan income tax (hereinafter referred to as
"Michigan-exempt dividends"). The Michigan Tax-Free Bond Fund intends to satisfy
the above requirements by investing (under
27
<PAGE> 105
normal market conditions) substantially all of its assets in municipal
securities of the State of Michigan, its cities, municipalities and other
political authorities.
Not later than 60 days after the close of its taxable year, the Michigan
Tax-Free Bond Fund will notify each shareholder of the portion of the dividends
paid which constitutes Michigan-exempt dividends with respect to such taxable
year. The total amount of Michigan-exempt dividends paid by the Michigan
Tax-Free Bond Fund to all of its shareholders with respect to any taxable year
cannot exceed the amount of interest received by the Fund during such year on
Michigan municipal securities and other obligations the interest on which is tax
exempt, less any expenses or expenditures (including any expenditures
attributable to the acquisition of securities of other investment companies).
Dividends paid by the Michigan Tax-Free Bond Fund in excess of this limitation
will not qualify for tax exempt treatment.
The Michigan Tax-Free Bond Fund may derive taxable income on temporary
investments and realize capital gains or losses from its portfolio transactions,
including the sale of securities. Such income will not qualify for tax exempt
treatment and will be taxable to shareholders as described, whether such
distributions are made in cash or in additional shares of the Fund. Any
distribution of net long term capital gains will be taxable to shareholders as
long term capital gains. In addition, a sale of shares in the Fund (including a
redemption of such shares or an exchange of shares between Funds) may be a
taxable event and may result in a taxable gain or loss to the shareholder. A
loss realized by a shareholder on the redemption, sale, or exchange of shares of
the Fund with respect to which Michigan-exempt dividends have been paid will be
disallowed to the extent of the Michigan-exempt dividends received if such
shares have been held by the shareholder for six months or less.
Other States -- The treatment for state, local and municipal tax purposes
of distributions of exempt-interest dividends from the Michigan Tax-Free Bond
Fund will vary according to the laws of state and local taxing authorities. In
some instances, a state or city may exempt from tax the portion of the
distribution from the Fund that represents interest received on obligations of
that state or its political subdivisions.
CAPITAL STOCK
Each Fund is comprised of two classes of stock -- the "Institutional Class"
and the "Consumer Service Class." When certain matters affect one class but not
another, the shareholders would vote as a class regarding such matters. Subject
to the foregoing, on any matter submitted to a vote of shareholders, all shares
then entitled to vote will be voted separately by Fund or portfolio unless
otherwise required by the Act, in which case all shares will be voted in the
aggregate. For example, a change in a Fund's fundamental investment policies
would be voted upon only by shareholders of the Fund involved. Additionally,
approval of the Advisory Agreements is a matter to be determined separately by
each Fund. Approval by the shareholders of one Fund is effective as to that Fund
whether or not sufficient votes are received from the shareholders of the other
Funds to approve the proposal as to those Funds. As used in the Prospectus and
in this Statement of Additional Information, the term "majority," when referring
to approvals to be obtained from shareholders of a Fund or class means
28
<PAGE> 106
the vote of the lesser of (i) 67% of the shares of the Fund or class represented
at a meeting if the holders of more than 50% of the outstanding shares of the
Fund or class are present in person or by proxy, or (ii) more than 50% of the
outstanding shares of the Fund or class. The term "majority," when referring to
the approvals to be obtained from shareholders of the Company as a whole means
the vote of the lesser of (i) 67% of the Company's shares represented at a
meeting if the holders of more than 50% of the Company's outstanding shares are
present in person or by proxy, or (ii) more than 50% of the Company's
outstanding shares. Shareholders are entitled to one vote for each full share
held and fractional votes for fractional shares held.
The Company may dispense with annual meetings of shareholders in any year
in which it is not required to elect directors under the Act. However, the
Company undertakes to hold a special meeting of its shareholders for the purpose
of voting on the question of removal of a director or directors if requested in
writing by the holders of at least 10% of the Company's outstanding voting
securities, and to assist in communicating with other shareholders as required
by Section 16(c) of the Act.
Each share of a Fund represents an equal proportional interest in that Fund
with each other share and is entitled to such dividends and distributions out of
the income earned on the assets belonging to that Fund as are declared in the
discretion of the Directors. In the event of the liquidation or dissolution of
the Company, shareholders of a Fund are entitled to receive the assets
attributable to that Fund that are available for distribution, and a
distribution of any general assets not attributable to a particular Fund that
are available for distribution in such manner and on such basis as the Directors
in their sole discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and non-assessable by the Company.
PRINCIPAL SHAREHOLDERS
At March 1, 1997, to the knowledge of management, the following persons
owned of record or beneficially 5% or more of a class of equity shares of the
Funds:
<TABLE>
<CAPTION>
MONEY MARKET FUND (INSTITUTIONAL CLASS)
<S> <C>
FM CO. 100.00%
Attn: Trust Operations
101 East Main St.
Zeeland, MI 49464-1735
<CAPTION>
INTERMEDIATE GOVERNMENT INCOME FUND (INSTITUTIONAL CLASS)
<S> <C>
FM CO. 99.77%
Attn: Trust Operations
101 East Main St.
Zeeland, MI 49464-1735
</TABLE>
29
<PAGE> 107
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT INCOME FUND (CONSUMER CLASS)
<S> <C>
AMERITRADE INC. 5.70%
P.O. Box 2226
Omaha, NE 68103-2226
MUSKEGON GENERAL HOSPITAL 11.46%
Attn: Mr. Walt Dabrowski
1700 Oak Avenue
Muskegon, MI 49442-2407
<CAPTION>
MICHIGAN TAX-FREE BOND FUND (INSTITUTIONAL CLASS)
<S> <C>
FM CO. 100.00%
Attn: Trust Operations
101 East Main St.
Zeeland, MI 49464-1735
<CAPTION>
DIVERSIFIED EQUITY FUND (INSTITUTIONAL CLASS)
<S> <C>
FM CO. 100.00%
Attn: Trust Operations
101 East Main St.
Zeeland, MI 49464-1735
</TABLE>
OTHER MATTERS
The Company's Registration Statement, including the Prospectus, the SAI and
the exhibits filed therewith, may be examined at the office of the Commission in
Washington, D.C. Statements contained in the Prospectus or the SAI as to the
contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
CUSTODIAN
Bankers Trust Company has been retained to act as Custodian for the Funds.
The Custodian, among other things, maintains a custody account or accounts in
the name of each Fund; receives and delivers all assets for each Fund upon
purchase and upon sale or maturity; collects and receives all income and other
payments and distributions on account of the assets of each Fund and pays all
expenses of each Fund. For its services as Custodian, Bankers Trust Company
receives a per account fee and transaction charges.
EXPERTS
Price Waterhouse LLP has been selected as the independent accountants for
the Company. Price Waterhouse LLP provides audit services, tax return
preparation and assistance and consultation in connection with review of certain
Securities and Exchange Commission filings. Price Waterhouse LLP's address is 30
South Seventeenth Street, Philadelphia, PA 19103.
30
<PAGE> 108
FINANCIAL STATEMENTS
The Company's financial statements and financial highlights, which have
been audited by Price Waterhouse LLP, are incorporated by reference into this
SAI in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of that firm as experts in auditing and accounting.
31
<PAGE> 109
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<C> <S>
(a) Financial Statements:
(1) Financial information included in Part A, the Prospectus:
FMB Money Market Fund, FMB Intermediate Government Income Fund, FMB Michigan
Tax-Free Bond Fund, FMB Diversified Equity Fund (Institutional Class):
-- Financial Highlights for the fiscal years ended November 30, 1996, November 30,
1995, November 30, 1994 and November 30, 1993 and for the period December 2, 1991
(commencement of operations) through November 30, 1992.
FMB Money Market Fund, FMB Intermediate Government Income Fund, FMB Michigan
Tax-Free Bond Fund, FMB Diversified Equity Fund (Consumer Service Class):
-- Financial Highlights for the fiscal years ended November 30, 1996, November 30,
1995, November 30, 1994 and November 30, 1993 and for the period December 2, 1991
(commencement of operations) through November 30, 1992.
(2) Financial Statements included in Part B, the Statement of Additional Information:*
FMB Money Market Fund, FMB Intermediate Government Income Fund, FMB Michigan
Tax-Free Bond Fund, FMB Diversified Equity Fund (Both Classes):
-- Report of Independent Accountants dated January 18, 1996
-- Portfolios of Investments at November 30, 1996
-- Statement of Assets and Liabilities at November 30, 1996
-- Statement of Operations for the fiscal year ended November 30, 1996
-- Statement of Changes in Net Assets for the fiscal years ended November 30, 1996
and November 30, 1995
-- Notes to Financial Statements
-- Financial Highlights for the fiscal years ended November 30, 1996, November 30,
1995, November 30, 1994 and November 30, 1993 and for the period December 2, 1991
(commencement of operations) through November 30, 1992.
(b) Exhibits:
(1) Articles of Incorporation of the Registrant (Previously filed as an exhibit to
Pre-Effective Amendment No. 2 to Registration Statement No. 33-42939 on November
29, 1991 and incorporated herein by reference).
(2) By-Laws of the Registrant (Previously filed as an exhibit to Pre-Effective
Amendment No. 2 to Registration Statement No. 33-42939 on November 29, 1991 and
incorporated herein by reference).
(3) Not applicable.
(4) Not applicable.
(5)(a)(i) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Money Market Fund filed herewith.
(ii) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Intermediate Government Income Fund filed herewith.
(iii) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Michigan Tax-Free Bond Fund filed herewith.
(iv) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Diversified Equity Fund filed herewith.
</TABLE>
- ---------------
<TABLE>
<C> <S>
*Incorporated by reference to the Registrant's Annual Report filed with the Securities and
Exchange Commission on January 28, 1997 (Accession Number: 0000935069-97-000002).
</TABLE>
C-1
<PAGE> 110
<TABLE>
<C> <S>
(b)(i) Amended and Restated Sub-Advisory Contract among FMB Funds, FMB-Trust and First
Michigan Bank Corporation on behalf of FMB Money Market Fund filed herewith.
(ii) Amended and Restated Sub-Advisory Contract among FMB Funds, Inc., FMB-Trust and
First Michigan Bank Corporation on behalf of FMB Intermediate Government Income
Fund filed herewith.
(iii) Amended and Restated Sub-Advisory Contract among FMB Funds, Inc., FMB-Trust and
First Michigan Bank Corporation on behalf of FMB Michigan Tax-Free Bond Fund filed
herewith.
(iv) Amended and Restated Sub-Advisory Contract among FMB Funds, Inc., FMB-Trust and
First Michigan Bank Corporation on behalf of FMB Diversified Equity Fund filed
herewith.
(6)(a) Distribution Agreement between SEI Financial Services Company and FMB Funds, Inc.
(Previously filed as an exhibit to Post Effective Amendment No. 5 to Registration
Statement No. 33-42939 on February 22, 1996 and incorporated herein by reference).
(7) Not applicable.
(8) Custodian Contract between Bankers Trust Company and FMB Funds, Inc. filed
herewith.
(9) Administration Agreement with SEI Financial Management Corporation. (Previously
filed as an exhibit to Post Effective Amendment No. 5 to Registration Statement
No. 33-42939 on February 22, 1996 and incorporated herein by reference).
(9)(a) Consent to Assignment and Assumption of Administration Agreement from SEI
Financial Management Corporation to SEI Fund Resources filed herewith.
(10) Opinion and Consent of Counsel (Previously filed as an exhibit to Pre-Effective
Amendment No. 2 to Registration Statement No. 33-42939 on November 29, 1991 and
incorporated herein by reference).
(11)(a) Consent of Independent Accountants filed herewith.
(12) Not applicable.
(13) Initial seed capital agreement (Previously filed as an exhibit to Pre-Effective
Amendment No. 2 to Registration Statement No. 33-42939 on November 29, 1991 and
incorporated herein by reference).
(14) Not applicable.
(15)(a) Amended and Restated Distribution Plan on behalf of the FMB Money Market Fund
filed herewith.
(b) Amended and Restated Distribution Plan on behalf of the FMB Intermediate
Government Income Fund filed herewith.
(c) Amended and Restated Distribution Plan on behalf of the FMB Michigan Tax-Free Bond
Fund filed herewith.
(d) Amended and Restated Distribution Plan on behalf of the FMB Diversified Equity
Fund filed herewith.
(16) Schedule of Performance Computation (Previously filed as an exhibit to Post
Effective Amendment No. 4 to Registration Statement No. 33-42939 on March 30, 1995
and incorporated herein by reference).
(17) Powers of Attorney filed herewith.
(18) Expert's Report on Net Asset Valuation Procedures (Previously filed as an exhibit
to Pre-Effective Amendment No. 2 to Registration Statement No. 33-42939 on
November 29, 1991 and incorporated herein by reference).
(19) Form of Multiclass Plan Pursuant to Rule 18f-3 Under the Investment Company Act of
1940, as amended dated March 29, 1995. (Previously filed as an exhibit to
Post-Effective Amendment No. 4 to Registration Statement No. 33-42939 on March 30,
1995 and incorporated herein by reference).
(20) Financial Data Schedules filed herewith.
</TABLE>
C-2
<PAGE> 111
<TABLE>
<C> <S>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of March 1, 1997, the number of shareholders of each class of securities of the
Registrant was as follows:
TITLE OF CLASS NUMBER OF
RECORD HOLDERS
The Money Market Fund
Consumer Service Class.....................................................1,753
Institutional Class...........................................................12
The Intermediate Government Income Fund
Consumer Service Class.......................................................515
Institutional Class...........................................................12
The Michigan Tax-Free Bond Fund
Consumer Service Class.......................................................476
Institutional Class...........................................................10
The Diversified Equity Fund
Consumer Service Class.....................................................1,173
Institutional Class............................................................9
ITEM 27. INDEMNIFICATION.
</TABLE>
Section 4 of Article VI of the Registrant's Articles of Incorporation
provides:
The Corporation shall indemnify (1) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full extent
required or permitted by the General Laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures and
to the full extent permitted by law, and (2) its other employees and agents to
such extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws as permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such By-Laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of these
Articles of Incorporation of the Corporation shall limit or eliminate the right
to indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal. Nothing contained herein shall be
construed to authorize the Corporation to indemnify any Director or officer of
the Corporation against any liability to the Corporation or to any holders of
securities of the Corporation to which he is subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. Any indemnification by the Corporation
shall be consistent with the requirements of law, including the 1940 Act.
To the fullest extent permitted by Maryland statutory and decisional law
and the 1940 Act, as amended or interpreted, no Director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages; provided, however, that nothing herein shall be construed to
protect any Director or officer of the Corporation against any liability to
which such Director or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. No amendment, modification or repeal of
this Article VIII shall adversely affect any right or protection of a Director
or officer that exists at the time of such amendment, modification or repeal.
C-3
<PAGE> 112
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
FMB-Trust is a wholly-owned subsidiary of First Michigan Bank Corporation
and serves as investment adviser to all of the Registrant's investment
portfolios. First Michigan Bank Corporation serves as investment sub-adviser to
all of the Registrant's investment portfolios.
To the knowledge of the Registrant, none of the directors or executive
officers of FMB-Trust or First Michigan Bank Corporation except those set forth
below, is or has been at any time during the past two fiscal years engaged in
any other business, profession, vocation or employment of a substantial nature.
Set forth below are the names and principal businesses of the directors and
executive officers of FMB-Trust or First Michigan Bank Corporation who are or
during the past two fiscal years have been engaged in any other business,
vocation or employment of a substantial nature for their own account or in the
capacity of director, officer, employee, partner or trustee.
Principal Business(es)
During at Least the Last Two Fiscal Years
<TABLE>
<CAPTION>
NAME POSITION
- --------------------- ---------------------------------------------------------
<S> <C>
Stanley P. Roberts Director & President, Vice President, Investments, First
Michigan Bank Corporation
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adivser.
Registrant's distributor, SEI Financial Services Company ("SFS"), acts as
distributor for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Marquis Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Insurance Investment Products Trust December 30, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
</TABLE>
C-4
<PAGE> 113
<TABLE>
<S> <C>
Monitor Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 30, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
SEI Institutional Investments Trust June 14, 1996
</TABLE>
SFS provides numerous financial services to investment managers, pension
plan sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds Evaluation")
and automated execution, clearing and settlement of securities transactions
("MarketLink").
(b) Furnish the information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is Oaks, Pennsylvania 19456.
<TABLE>
<CAPTION>
POSITION AND OFFICE WITH POSITIONS AND OFFICES
NAME UNDERWRITER WITH REGISTRANT
- ------------------------------ ------------------------------ ---------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief --
Executive Officer
Henry H. Greer Director, President & Chief --
Operating Officer
Carmen V. Romeo Director, Executive Vice --
President & Treasurer
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, --
President-Investment Services
Division
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
Larry Hutchison Senior Vice President --
Steven Kramer Senior Vice President --
David G. Lee Senior Vice President President & Chief
Executive Officer
William Madden Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara Moore Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Kevin P. Robins Senior Vice President, General Vice President &
Counsel & Secretary Assistant Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Robert Crudup Vice President & Managing --
Director
Vic Galef Vice President & Managing --
Director
Kim Kirk Vice President & Managing --
Director
</TABLE>
C-5
<PAGE> 114
<TABLE>
<CAPTION>
POSITION AND OFFICE WITH POSITIONS AND OFFICES
NAME UNDERWRITER WITH REGISTRANT
- ------------------------------ ------------------------------ ---------------------
<S> <C> <C>
John Krzeminski Vice President & Managing --
Director
Carolyn McLaurin Vice President & Managing --
Director & Vice
President
Donald Pepin Vice President & Managing --
Director
Mark Samuels Vice President & Managing --
Director
Wayne M. Withrow Vice President & Managing --
Director
Mick Duncan Vice President & Team Leader --
Robert S. Ludwig Vice President & Team Leader --
Vicki Malloy Vice President & Team Leader --
Robert Aller Vice President --
Marc H. Cahn Vice President & Assistant Vice President &
Secretary Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Vice President &
Secretary Secretary
Ed Daly Vice President --
Jeff Drennen Vice President --
Kathy Heilig Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
Donald H. Korytowski Vice President --
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Vice President &
Secretary Assistant Secretary
Sandra K. Orlow Vice President & Assistant Vice President &
Secretary Assistant Secretary
Larry Pokora Vice President --
Kim Rainey Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Vice President &
Secretary Assistant Secretary
William Zawaski Vice President --
James Dougherty Director of Brokerage Services --
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder are
maintained at one or more of the following offices: SEI Fund Resources, Oaks,
Pennsylvania 19456; or at FMB-Trust, One Financial Plaza, Holland, Michigan
49423.
C-6
<PAGE> 115
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "Management of the Funds" and
"Other Information" in the Prospectuses constituting Part A of the Registration
Statement and "Management" and "Custodian" in the Statement of Additional
Information constituting Part B of this Registration Statement, Registrant is
not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-7
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Amendment No. 6 to the
Registration Statement to be signed in its behalf by the undersigned, thereunto
duly authorized in the City of Oaks, and State of Pennsylvania on the 28th day
of March, 1997.
FMB FUNDS, INC.
By: /s/ DAVID G. LEE
------------------------------------
(David G. Lee, President)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 6 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<S> <C> <C>
President and Chief March 28, 1997
Executive Officer (Principal
/s/ DAVID G. LEE Executive Officer)
- ------------------------------------------
Controller, Treasurer and March 28, 1997
Chief Financial Officer
- ------------------------------------------ (Principal Financial
(Carol Rooney) Officer)
* Director March 28, 1997
- ------------------------------------------
(Valerie T. Ambrose)
* Director March 28, 1997
- ------------------------------------------
(William K. Anderson)
* Director March 28, 1997
- ------------------------------------------
(Timothy C. Morawski)
* Director March 28, 1997
- ------------------------------------------
(Michael R. Mucciolo)
*By: /s/ DAVID G. LEE
- ------------------------------------------
(As Attorney-in-Fact)
</TABLE>
C-8
<PAGE> 117
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ -------------------------------------------------------------------------------
<C> <S>
(5)(a)(i) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Money Market Fund.
(ii) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Intermediate Government Income Fund.
(iii) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Michigan Tax-Free Bond Fund.
(iv) Amended and Restated Advisory Contract between FMB Funds, Inc. and FMB-Trust on
behalf of the FMB Diversified Equity Fund.
(b)(i) Amended and Restated Sub-Advisory Contract among FMB Funds, FMB-Trust and First
Michigan Bank Corporation on behalf of FMB Money Market Fund.
(ii) Amended and Restated Sub-Advisory Contract among FMB Funds, FMB-Trust and First
Michigan Bank Corporation on behalf of FMB Intermediate Government Income Fund.
(iii) Amended and Restated Sub-Advisory Contract among FMB Funds, FMB-Trust and First
Michigan Bank Corporation on behalf of FMB Michigan Tax-Free Bond Fund.
(iv) Amended and Restated Sub-Advisory Contract among FMB Funds, FMB-Trust and First
Michigan Bank Corporation on behalf of FMB Diversified Equity Fund.
(8) Custodian contract between Bankers Trust Company and FMB Funds, Inc.
(9)(a) Consent to Assignment and Assumption of Administration Agreement from SEI
Financial Management Corporation to SEI Fund Resources.
(11)(a) Consent of Independent Accountants
(15)(a) Amended and Restated Distribution Plan on behalf of the FMB Money Market Fund.
(b) Amended and Restated Distribution Plan on behalf of the FMB Intermediate
Government Income Fund.
(c) Amended and Restated Distribution Plan on behalf of the FMB Michigan Tax-Free
Bond Fund.
(d) Amended and Restated Distribution Plan on behalf of the FMB Diversified Equity
Fund.
(17) Powers of Attorney
(20) Financial Data Schedules
</TABLE>
C-9
<PAGE> 1
AMENDED AND RESTATED ADVISORY CONTRACT
The FMB Money Market Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
FMB-Trust
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company")
on behalf of the FMB Money Market Fund (the "Fund") and FMB-Trust (the
"Adviser") as follows:
1. The Company is an open-end investment company currently consisting
of four investment portfolios, but which may from time to time consist of a
greater or lesser number of investment portfolios (the "Funds"). The Company
engages in the business of investing and reinvesting the assets of the Fund in
the manner and in accordance with the investment objective and restrictions
specified in the Company's currently effective prospectus and the currently
effective statement of additional information incorporated by reference therein
relating to the Fund and the Company (such prospectus and such statement of
additional information being collectively referred to as the "Prospectus")
included in the Company's Registration Statement, as amended from time to time
(the "Registration Statement"), filed by the Company under the Investment
Company Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and the Company's administrator (the "Administrator") on
behalf of the Fund, the Company has engaged the Administrator to provide the
administrative services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund
in accordance with the Adviser's best judgment and consistent with the
investment objective and
<PAGE> 2
2
restrictions set forth in the Company's Prospectus, the Act and the provisions
of the Internal Revenue Code relating to regulated investment companies,
subject to policy decisions adopted by the Company's Board of Directors. The
Adviser shall advise the Company's officers and Board of Directors, at such
times as the Company's Board of Directors may specify, of investments made for
the Fund and shall, when requested by the Company's officers or Board of
Directors, supply the reasons for making particular investments.
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request, other
than such costs relating to proxy statements, prospectuses, shareholder reports
and other materials distributed to existing or prospective shareholders on
behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with itself
such persons as the Adviser believes appropriate to assist it in performing its
obligations under this contract.
4. Except as provided in each of the Company's advisory contracts and
administration agreements, the Company shall bear all costs of its operations,
including the compensation of its directors who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
shares; expenses of preparing and printing stock certificates, prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and
<PAGE> 3
3
calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or
more, but not all, of the Funds are charged against the assets of the relevant
Funds. General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's
best judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.35% of the first five
hundred million, 0.30% of the next five hundred million and 0.25% of one billion
or above of the average daily value (as determined on each day that such value
is determined for the Fund at the time set forth in the Prospectus for
determining net asset value per share) of the Fund's net assets during the
preceding month. If the fee payable to the Adviser pursuant to this paragraph 6
begins to accrue before the end of any month or if this contract terminates
before the end of any month, the fee for the period from the effective date to
the end of that month or from the beginning of that month to the termination
date, respectively, shall be prorated according to the proportion that the
period bears to the full month in which the effectiveness or termination occurs.
For purposes of calculating each such monthly fee, the value of the Fund's net
assets shall be computed in the manner specified in the Prospectus and the
Company's Articles of Incorporation for the computation of the value of the
Fund's net assets in connection with the determination of the net asset value of
Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred by,
or allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under a Rule 12b-1 Plan of
<PAGE> 4
4
the Fund, but including the fees provided for in paragraph 6 and those provided
for pursuant to the Fund's Administration Agreement ("includible expenses"),
exceed the most restrictive expense limitation applicable to the Fund imposed
by state securities laws or regulations thereunder, as these limitations may be
raised or lowered from time to time, the Adviser shall waive or reimburse that
portion of the excess derived by multiplying the excess by a fraction, the
numerator of which shall be the percentage at which the excess portion
attributable to the fee payable pursuant to this agreement is calculated under
paragraph 6 hereof, and the denominator of which shall be the sum of such
percentage plus the percentage at which the excess portion attributable to the
fee payable pursuant to the Fund's Administration Agreement is calculated (the
"Applicable Ratio"), but only to the extent of the fee hereunder for the fiscal
year. If the fees payable under this contract and/or the Fund's Administration
Agreement contributing to such excess portion are calculated at more than one
percentage rate, the Applicable Ratio shall be calculated separately on the
basis of, and applied separately to, the portions of the fees calculated at the
different rates. At the end of each month of the Company's fiscal year, the
Company shall review the includible expenses accrued during that fiscal year to
the end of the period and shall estimate the contemplated includible expenses
for the balance of that fiscal year. If as a result of that review and
estimation it appears likely that the includible expenses will exceed the
limitations referred to in this paragraph 7 for a fiscal year with respect to
the Fund, the monthly fee set forth in paragraph 6 payable to the Adviser for
such month shall be reduced, subject to a later adjustment, by an amount equal
to the Applicable Ratio times the pro rata portion (prorated on the basis of
the remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year are expected to
exceed the limitations provided for in this paragraph 7. For purposes of
computing the excess, if any, over the most restrictive applicable expense
limitation, the value of the Fund's net assets shall be computed in the manner
specified in the last sentence of paragraph 6, and any reimbursements required
to be made by the Adviser shall be made once a year promptly after the end of
the Company's fiscal year.
8. This contract shall continue in effect only so long as the
continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the Act) or
by the Company's Board of Directors and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Company's directors who are
not parties to this contract or "interested persons" (as defined in the Act) of
any such party. This contract may be terminated at any time by the Company,
without the payment of any penalty, by a vote of a majority of the Fund's
outstanding voting securities (as defined in the Act) or by a vote of a majority
of the Company's entire Board of Directors on 60 days' written
<PAGE> 5
5
notice to the Adviser or by the Adviser on 60 days' written notice to the
Company. This contract shall terminate automatically in the event of its
assignment (as defined in the Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The Adviser and the Company each agree that the acronym "FMB,"
which comprises a component of the Company's name, is a property right of the
parent of the Adviser. The Company agrees and consents that: (i) it will use
the acronym "FMB" as a component of its corporate name, the name of any class,
or both and for no other purpose; (ii) it will not grant to any third party the
right to use the acronym "FMB" for any purpose; (iii) the Adviser or any
corporate affiliate of the Adviser may use or grant to others the right to use
the acronym "FMB," or any combination, derivative or abbreviation thereof, as
all or a portion of a corporate or business name or for any commercial purpose,
other than a grant of such right to another registered investment company not
advised by the Adviser or one of its affiliates; and (iv) in the event that the
Adviser or an affiliate thereof is no longer acting as investment adviser to any
series or class, the Company shall, upon request by the Adviser, promptly take
such action as may be necessary to change its corporate name to one not
containing the acronym "FMB" and following such change, shall not use the
acronym "FMB," or any combination thereof, as a part of its corporate name or
for any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
11. This contract shall be governed by and construed in accordance
with the laws of the State of Michigan.
<PAGE> 6
6
If the foregoing correctly sets forth the agreement between the Company
and the Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
FMB FUNDS, INC.
on behalf of the FMB Money
Market Fund
By:______________________________
Title:___________________________
ACCEPTED as of the date
set forth above:
FMB-Trust
By:_____________________________
Title:__________________________
<PAGE> 1
AMENDED AND RESTATED ADVISORY CONTRACT
The FMB Intermediate Government Income Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
FMB-Trust
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company")
on behalf of the FMB Intermediate Government Income Fund (the "Fund") and
FMB-Trust (the "Adviser") as follows:
1. The Company is an open-end investment company currently consisting
of four investment portfolios, but which may from time to time consist of a
greater or lesser number of investment portfolios (the "Funds"). The Company
engages in the business of investing and reinvesting the assets of the Fund in
the manner and in accordance with the investment objective and restrictions
specified in the Company's currently effective prospectus and the currently
effective statement of additional information incorporated by reference therein
relating to the Fund and the Company (such prospectus and such statement of
additional information being collectively referred to as the "Prospectus")
included in the Company's Registration Statement, as amended from time to time
(the "Registration Statement"), filed by the Company under the Investment
Company Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and the Company's administrator (the "Administrator") on
behalf of the Fund, the Company has engaged the Administrator to provide the
administrative services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund
in accordance with the Adviser's best
<PAGE> 2
2
judgment and consistent with the investment objective and restrictions set forth
in the Company's Prospectus, the Act and the provisions of the Internal Revenue
Code relating to regulated investment companies, subject to policy decisions
adopted by the Company's Board of Directors. The Adviser shall advise the
Company's officers and Board of Directors, at such times as the Company's Board
of Directors may specify, of investments made for the Fund and shall, when
requested by the Company's officers or Board of Directors, supply the reasons
for making particular investments.
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request, other
than such costs relating to proxy statements, prospectuses, shareholder reports
and other materials distributed to existing or prospective shareholders on
behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with itself
such persons as the Adviser believes appropriate to assist it in performing its
obligations under this contract.
4. Except as provided in each of the Company's advisory contracts and
administration agreements, the Company shall bear all costs of its operations,
including the compensation of its directors who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
shares; expenses of preparing and printing stock certificates, prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any
<PAGE> 3
3
custodian, including those for keeping books and accounts and calculating the
net asset value per share of the Fund; expenses of shareholders' meetings;
expenses relating to the issuance, registration and qualification of shares of
the Fund; pricing services, if any; organizational expenses; and any
extraordinary expenses. Expenses attributable to one or more, but not all, of
the Funds are charged against the assets of the relevant Funds. General
expenses of the Funds are allocated among the Funds in a manner proportionate to
the net assets of each Fund, on a transactional basis or on such other basis as
the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's
best judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.45% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value per
share) of the Fund's net assets during the preceding month. If the fee payable
to the Adviser pursuant to this paragraph 6 begins to accrue before the end of
any month or if this contract terminates before the end of any month, the fee
for the period from the effective date to the end of that month or from the
beginning of that month to the termination date, respectively, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating each such
monthly fee, the value of the Fund's net assets shall be computed in the manner
specified in the Prospectus and the Company's Articles of Incorporation for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred by,
or allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but including
the fees provided for in paragraph 6 and
<PAGE> 4
4
those provided for pursuant to the Fund's Administration Agreement ("includible
expenses"), exceed the most restrictive expense limitation applicable to the
Fund imposed by state securities laws or regulations thereunder, as these
limitations may be raised or lowered from time to time, the Adviser shall waive
or reimburse that portion of the excess derived by multiplying the excess by a
fraction, the numerator of which shall be the percentage at which the excess
portion attributable to the fee payable pursuant to this agreement is
calculated under paragraph 6 hereof, and the denominator of which shall be the
sum of such percentage plus the percentage at which the excess portion
attributable to the fee payable pursuant to the Fund's Administration Agreement
is calculated (the "Applicable Ratio"), but only to the extent of the fee
hereunder for the fiscal year. If the fees payable under this contract and/or
the Fund's Administration Agreement contributing to such excess portion are
calculated at more than one percentage rate, the Applicable Ratio shall be
calculated separately on the basis of, and applied separately to, the portions
of the fees calculated at the different rates. At the end of each month of the
Company's fiscal year, the Company shall review the includible expenses accrued
during that fiscal year to the end of the period and shall estimate the
contemplated includible expenses for the balance of that fiscal year. If as a
result of that review and estimation it appears likely that the includible
expenses will exceed the limitations referred to in this paragraph 7 for a
fiscal year with respect to the Fund, the monthly fee set forth in paragraph 6
payable to the Adviser for such month shall be reduced, subject to a later
adjustment, by an amount equal to the Applicable Ratio times the pro rata
portion (prorated on the basis of the remaining months of the fiscal year,
including the month just ended) of the amount by which the includible expenses
for the fiscal year are expected to exceed the limitations provided for in this
paragraph 7. For purposes of computing the excess, if any, over the most
restrictive applicable expense limitation, the value of the Fund's net assets
shall be computed in the manner specified in the last sentence of paragraph 6,
and any reimbursements required to be made by the Adviser shall be made once a
year promptly after the end of the Company's fiscal year.
8. This contract shall continue in effect only so long as the
continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the Act) or
by the Company's Board of Directors and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Company's directors who are
not parties to this contract or "interested persons" (as defined in the Act) of
any such party. This contract may be terminated at any time by the Company,
without the payment of any penalty, by a vote of a majority of the Fund's
outstanding voting securities (as defined in the Act) or by a vote of a majority
of the Company's entire Board of Directors on 60 days' written notice to the
Adviser or by the Adviser on 60 days' written
<PAGE> 5
5
notice to the Company. This contract shall terminate automatically in the
event of its assignment (as defined in the Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The Adviser and the Company each agree that the acronym "FMB,"
which comprises a component of the Company's name, is a property right of the
parent of the Adviser. The Company agrees and consents that: (i) it will use
the acronym "FMB" as a component of its corporate name, the name of any class,
or both and for no other purpose; (ii) it will not grant to any third party the
right to use the acronym "FMB" for any purpose; (iii) the Adviser or any
corporate affiliate of the Adviser may use or grant to others the right to use
the acronym "FMB," or any combination, derivative or abbreviation thereof, as
all or a portion of a corporate or business name or for any commercial purpose,
other than a grant of such right to another registered investment company not
advised by the Adviser or one of its affiliates; and (iv) in the event that the
Adviser or an affiliate thereof is no longer acting as investment adviser to any
series or class, the Company shall, upon request by the Adviser, promptly take
such action as may be necessary to change its corporate name to one not
containing the acronym "FMB" and following such change, shall not use the
acronym "FMB," or any combination thereof, as a part of its corporate name or
for any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
11. This contract shall be governed by and construed in accordance
with the laws of the State of Michigan.
<PAGE> 6
6
If the foregoing correctly sets forth the agreement between the Company
and the Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
FMB FUNDS, INC.
on behalf of the FMB Intermediate
Government Income Fund
By:______________________________
Title:___________________________
ACCEPTED as of the date
set forth above:
FMB-Trust
By:_____________________________
Title:__________________________
<PAGE> 1
AMENDED AND RESTATED ADVISORY CONTRACT
The FMB Michigan Tax-Free Bond Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
FMB-Trust
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company")
on behalf of the FMB Michigan Tax-Free Bond Fund (the "Fund") and FMB-Trust (the
"Adviser") as follows:
1. The Company is an open-end investment company currently consisting
of four investment portfolios, but which may from time to time consist of a
greater or lesser number of investment portfolios (the "Funds"). The Company
engages in the business of investing and reinvesting the assets of the Fund in
the manner and in accordance with the investment objective and restrictions
specified in the Company's currently effective prospectus and the currently
effective statement of additional information incorporated by reference therein
relating to the Fund and the Company (such prospectus and such statement of
additional information being collectively referred to as the "Prospectus")
included in the Company's Registration Statement, as amended from time to time
(the "Registration Statement"), filed by the Company under the Investment
Company Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and the Company's administrator (the "Administrator") on
behalf of the Fund, the Company has engaged the Administrator to provide the
administrative services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund
in accordance with the Adviser's best judgment and consistent with the
investment objective and
<PAGE> 2
2
restrictions set forth in the Company's Prospectus, the Act and the provisions
of the Internal Revenue Code relating to regulated investment companies,
subject to policy decisions adopted by the Company's Board of Directors. The
Adviser shall advise the Company's officers and Board of Directors, at such
times as the Company's Board of Directors may specify, of investments made for
the Fund and shall, when requested by the Company's officers or Board of
Directors, supply the reasons for making particular investments.
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request, other
than such costs relating to proxy statements, prospectuses, shareholder reports
and other materials distributed to existing or prospective shareholders on
behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with itself
such persons as the Adviser believes appropriate to assist it in performing its
obligations under this contract.
4. Except as provided in each of the Company's advisory contracts and
administration agreements, the Company shall bear all costs of its operations,
including the compensation of its directors who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
shares; expenses of preparing and printing stock certificates, prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and
<PAGE> 3
3
calculating the net asset value per share of the Fund; expenses of
shareholders' meetings; expenses relating to the issuance, registration and
qualification of shares of the Fund; pricing services, if any; organizational
expenses; and any extraordinary expenses. Expenses attributable to one or
more, but not all, of the Funds are charged against the assets of the relevant
Funds. General expenses of the Funds are allocated among the Funds in a manner
proportionate to the net assets of each Fund, on a transactional basis or on
such other basis as the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's
best judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 0.55% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value per
share) of the Fund's net assets during the preceding month. If the fee payable
to the Adviser pursuant to this paragraph 6 begins to accrue before the end of
any month or if this contract terminates before the end of any month, the fee
for the period from the effective date to the end of that month or from the
beginning of that month to the termination date, respectively, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating each such
monthly fee, the value of the Fund's net assets shall be computed in the manner
specified in the Prospectus and the Company's Articles of Incorporation for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred by,
or allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but including
the fees provided for in paragraph 6 and those provided for pursuant to the
Fund's Administration
<PAGE> 4
4
Agreement ("includible expenses"), exceed the most restrictive expense
limitation applicable to the Fund imposed by state securities laws or
regulations thereunder, as these limitations may be raised or lowered from time
to time, the Adviser shall waive or reimburse that portion of the excess
derived by multiplying the excess by a fraction, the numerator of which shall
be the percentage at which the excess portion attributable to the fee payable
pursuant to this agreement is calculated under paragraph 6 hereof, and the
denominator of which shall be the sum of such percentage plus the percentage at
which the excess portion attributable to the fee payable pursuant to the Fund's
Administration Agreement is calculated (the "Applicable Ratio"), but only to
the extent of the fee hereunder for the fiscal year. If the fees payable under
this contract and/or the Fund's Administration Agreement contributing to such
excess portion are calculated at more than one percentage rate, the Applicable
Ratio shall be calculated separately on the basis of, and applied separately
to, the portions of the fees calculated at the different rates. At the end of
each month of the Company's fiscal year, the Company shall review the
includible expenses accrued during that fiscal year to the end of the period
and shall estimate the contemplated includible expenses for the balance of that
fiscal year. If as a result of that review and estimation it appears likely
that the includible expenses will exceed the limitations referred to in this
paragraph 7 for a fiscal year with respect to the Fund, the monthly fee set
forth in paragraph 6 payable to the Adviser for such month shall be reduced,
subject to a later adjustment, by an amount equal to the Applicable Ratio times
the pro rata portion (prorated on the basis of the remaining months of the
fiscal year, including the month just ended) of the amount by which the
includible expenses for the fiscal year are expected to exceed the limitations
provided for in this paragraph 7. For purposes of computing the excess, if
any, over the most restrictive applicable expense limitation, the value of the
Fund's net assets shall be computed in the manner specified in the last
sentence of paragraph 6, and any reimbursements required to be made by the
Adviser shall be made once a year promptly after the end of the Company's
fiscal year.
8. This contract shall continue in effect only so long as the
continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the Act) or
by the Company's Board of Directors and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Company's directors who are
not parties to this contract or "interested persons" (as defined in the Act) of
any such party. This contract may be terminated at any time by the Company,
without the payment of any penalty, by a vote of a majority of the Fund's
outstanding voting securities (as defined in the Act) or by a vote of a majority
of the Company's entire Board of Directors on 60 days' written notice to the
Adviser or by the Adviser on 60 days' written notice to the Company. This
contract shall terminate
<PAGE> 5
5
automatically in the event of its assignment (as defined in the Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The Adviser and the Company each agree that the acronym "FMB,"
which comprises a component of the Company's name, is a property right of the
parent of the Adviser. The Company agrees and consents that: (i) it will use
the acronym "FMB" as a component of its corporate name, the name of any class,
or both and for no other purpose; (ii) it will not grant to any third party the
right to use the acronym "FMB" for any purpose; (iii) the Adviser or any
corporate affiliate of the Adviser may use or grant to others the right to use
the acronym "FMB," or any combination, derivative or abbreviation thereof, as
all or a portion of a corporate or business name or for any commercial purpose,
other than a grant of such right to another registered investment company not
advised by the Adviser or one of its affiliates; and (iv) in the event that the
Adviser or an affiliate thereof is no longer acting as investment adviser to any
series or class, the Company shall, upon request by the Adviser, promptly take
such action as may be necessary to change its corporate name to one not
containing the acronym "FMB" and following such change, shall not use the
acronym "FMB," or any combination thereof, as a part of its corporate name or
for any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
11. This contract shall be governed by and construed in accordance
with the laws of the State of Michigan.
<PAGE> 6
6
If the foregoing correctly sets forth the agreement between
the Company and the Adviser, please so indicate by signing and returning to the
Company the enclosed copy hereof.
Very truly yours,
FMB FUNDS, INC.
on behalf of the FMB Michigan
Tax-Free Bond Fund
By:______________________________
Title:___________________________
ACCEPTED as of the date
set forth above:
FMB-Trust
By:_____________________________
Title:__________________________
<PAGE> 1
AMENDED AND RESTATED ADVISORY CONTRACT
The FMB Diversified Equity Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
FMB-Trust
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company")
on behalf of the FMB Diversified Equity Fund (the "Fund") and FMB-Trust (the
"Adviser") as follows:
1. The Company is an open-end investment company currently consisting
of four investment portfolios, but which may from time to time consist of a
greater or lesser number of investment portfolios (the "Funds"). The Company
engages in the business of investing and reinvesting the assets of the Fund in
the manner and in accordance with the investment objective and restrictions
specified in the Company's currently effective prospectus and the currently
effective statement of additional information incorporated by reference therein
relating to the Fund and the Company (such prospectus and such statement of
additional information being collectively referred to as the "Prospectus")
included in the Company's Registration Statement, as amended from time to time
(the "Registration Statement"), filed by the Company under the Investment
Company Act of 1940 (the "Act") and the Securities Act of 1933. Copies of the
documents referred to in the preceding sentence have been furnished to the
Adviser. Any amendments to those documents shall be furnished to the Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in this contract, subject to the overall supervision of the
Board of Directors of the Company. Pursuant to an administration agreement
between the Company and the Company's administrator (the "Administrator") on
behalf of the Fund, the Company has engaged the Administrator to provide the
administrative services specified therein.
3. (a) The Adviser shall make investments for the account of the Fund
in accordance with the Adviser's best judgment and consistent with the
investment objective and
<PAGE> 2
2
restrictions set forth in the Company's Prospectus, the Act and the provisions
of the Internal Revenue Code relating to regulated investment companies,
subject to policy decisions adopted by the Company's Board of Directors. The
Adviser shall advise the Company's officers and Board of Directors, at such
times as the Company's Board of Directors may specify, of investments made for
the Fund and shall, when requested by the Company's officers or Board of
Directors, supply the reasons for making particular investments.
(b) The Adviser shall provide to the Company investment guidance and
policy direction in connection with its daily management of the Fund's
portfolio, including oral and written research, analysis, advice, statistical
and economic data and information and judgments, and shall furnish to the
Company's Board of Directors periodic reports on the investment strategy and
performance of the Fund and such additional reports and information as the
Company's Board of Directors and officers shall reasonably request.
(c) The Adviser shall pay the costs of printing and distributing all
materials relating to the Fund prepared by it, or prepared at its request, other
than such costs relating to proxy statements, prospectuses, shareholder reports
and other materials distributed to existing or prospective shareholders on
behalf of the Fund.
(d) The Adviser shall, at its expense, employ or associate with itself
such persons as the Adviser believes appropriate to assist it in performing its
obligations under this contract.
4. Except as provided in each of the Company's advisory contracts and
administration agreements, the Company shall bear all costs of its operations,
including the compensation of its directors who are not affiliated with the
Adviser, the Administrator or any of their affiliates; advisory and
administration fees; payments of distribution-related expenses pursuant to any
Rule 12b-1 Plan, i.e., a plan of distribution of the Company adopted on behalf
of any of the Funds pursuant to Rule 12b-1 under the Act; governmental fees;
interest charges; taxes; fees and expenses of its independent accountants, legal
counsel, transfer agent and dividend disbursing agent; expenses of redeeming
shares; expenses of preparing and printing stock certificates, prospectuses
(except the expense of printing and mailing prospectuses used for promotional
purposes, unless otherwise payable pursuant to a Rule 12b-1 Plan), shareholders'
reports, notices, proxy statements and reports to regulatory agencies; travel
expenses of directors, officers and employees; office supplies; insurance
premiums and certain expenses relating to insurance coverage; trade association
membership dues; brokerage and other expenses connected with the execution of
portfolio securities transactions; fees and expenses of any custodian, including
those for keeping books and accounts and
<PAGE> 3
3
calculating the net asset value per share of the Fund; expenses of shareholders'
meetings; expenses relating to the issuance, registration and qualification of
shares of the Fund; pricing services, if any; organizational expenses; and any
extraordinary expenses. Expenses attributable to one or more, but not all, of
the Funds are charged against the assets of the relevant Funds. General
expenses of the Funds are allocated among the Funds in a manner proportionate to
the net assets of each Fund, on a transactional basis or on such other basis as
the Board of Directors deems equitable.
5. The Adviser shall give the Company the benefit of the Adviser's
best judgment and efforts in rendering services under this contract. As an
inducement to the Adviser's undertaking to render these services, the Company
agrees that the Adviser shall not be liable under this contract for any mistake
in judgment or in any other event whatsoever except for lack of good faith,
provided that nothing in this contract shall be deemed to protect or purport to
protect the Adviser against any liability to the Company or its shareholders to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser
under this contract, the Company shall pay the Adviser a monthly fee on the
first business day of each month, at the annual rate of 1.00% of the average
daily value (as determined on each day that such value is determined for the
Fund at the time set forth in the Prospectus for determining net asset value per
share) of the Fund's net assets during the preceding month. If the fee payable
to the Adviser pursuant to this paragraph 6 begins to accrue before the end of
any month or if this contract terminates before the end of any month, the fee
for the period from the effective date to the end of that month or from the
beginning of that month to the termination date, respectively, shall be prorated
according to the proportion that the period bears to the full month in which the
effectiveness or termination occurs. For purposes of calculating each such
monthly fee, the value of the Fund's net assets shall be computed in the manner
specified in the Prospectus and the Company's Articles of Incorporation for the
computation of the value of the Fund's net assets in connection with the
determination of the net asset value of Fund shares.
7. If in any fiscal year the total expenses of the Fund incurred by,
or allocated to, the Fund excluding taxes, interest, brokerage commissions and
other portfolio transaction expenses, other expenditures that are capitalized in
accordance with generally accepted accounting principles, extraordinary expenses
and amounts accrued or paid under a Rule 12b-1 Plan of the Fund, but including
the fees provided for in paragraph 6 and those provided for pursuant to the
Fund's Administration
<PAGE> 4
4
Agreement ("includible expenses"), exceed the most restrictive expense
limitation applicable to the Fund imposed by state securities laws or
regulations thereunder, as these limitations may be raised or lowered from time
to time, the Adviser shall waive or reimburse that portion of the excess
derived by multiplying the excess by a fraction, the numerator of which shall
be the percentage at which the excess portion attributable to the fee payable
pursuant to this agreement is calculated under paragraph 6 hereof, and the
denominator of which shall be the sum of such percentage plus the percentage at
which the excess portion attributable to the fee payable pursuant to the Fund's
Administration Agreement is calculated (the "Applicable Ratio"), but only to
the extent of the fee hereunder for the fiscal year. If the fees payable under
this contract and/or the Fund's Administration Agreement contributing to such
excess portion are calculated at more than one percentage rate, the Applicable
Ratio shall be calculated separately on the basis of, and applied separately
to, the portions of the fees calculated at the different rates. At the end of
each month of the Company's fiscal year, the Company shall review the
includible expenses accrued during that fiscal year to the end of the period
and shall estimate the contemplated includible expenses for the balance of that
fiscal year. If as a result of that review and estimation it appears likely
that the includible expenses will exceed the limitations referred to in this
paragraph 7 for a fiscal year with respect to the Fund, the monthly fee set
forth in paragraph 6 payable to the Adviser for such month shall be reduced,
subject to a later adjustment, by an amount equal to the Applicable Ratio times
the pro rata portion (prorated on the basis of the remaining months of the
fiscal year, including the month just ended) of the amount by which the
includible expenses for the fiscal year are expected to exceed the limitations
provided for in this paragraph 7. For purposes of computing the excess, if
any, over the most restrictive applicable expense limitation, the value of the
Fund's net assets shall be computed in the manner specified in the last
sentence of paragraph 6, and any reimbursements required to be made by the
Adviser shall be made once a year promptly after the end of the Company's
fiscal year.
8. This contract shall continue in effect only so long as the
continuance is specifically approved at least annually (a) by the vote of a
majority of the Fund's outstanding voting securities (as defined in the Act) or
by the Company's Board of Directors and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Company's directors who are
not parties to this contract or "interested persons" (as defined in the Act) of
any such party. This contract may be terminated at any time by the Company,
without the payment of any penalty, by a vote of a majority of the Fund's
outstanding voting securities (as defined in the Act) or by a vote of a majority
of the Company's entire Board of Directors on 60 days' written notice to the
Adviser or by the Adviser on 60 days' written notice to the Company. This
contract shall terminate
<PAGE> 5
5
automatically in the event of its assignment (as defined in the Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The Adviser and the Company each agree that the acronym "FMB,"
which comprises a component of the Company's name, is a property right of the
parent of the Adviser. The Company agrees and consents that: (i) it will use
the acronym "FMB" as a component of its corporate name, the name of any class,
or both and for no other purpose; (ii) it will not grant to any third party the
right to use the acronym "FMB" for any purpose; (iii) the Adviser or any
corporate affiliate of the Adviser may use or grant to others the right to use
the acronym "FMB," or any combination, derivative or abbreviation thereof, as
all or a portion of a corporate or business name or for any commercial purpose,
other than a grant of such right to another registered investment company not
advised by the Adviser or one of its affiliates; and (iv) in the event that the
Adviser or an affiliate thereof is no longer acting as investment adviser to any
series or class, the Company shall, upon request by the Adviser, promptly take
such action as may be necessary to change its corporate name to one not
containing the acronym "FMB" and following such change, shall not use the
acronym "FMB," or any combination thereof, as a part of its corporate name or
for any other commercial purpose, and shall use its best efforts to cause its
directors, officers, and shareholders to take any and all actions that the
Adviser may request to effect the foregoing and to reconvey to the Adviser any
and all rights to such words.
11. This contract shall be governed by and construed in accordance
with the laws of the State of Michigan.
<PAGE> 6
6
If the foregoing correctly sets forth the agreement between the Company
and the Adviser, please so indicate by signing and returning to the Company the
enclosed copy hereof.
Very truly yours,
FMB FUNDS, INC.
on behalf of the FMB Diversified
Equity Fund
By:______________________________
Title:___________________________
ACCEPTED as of the date
set forth above:
FMB-Trust
By:_____________________________
Title:__________________________
<PAGE> 1
AMENDED AND RESTATED SUB-ADVISORY CONTRACT
FMB Money Market Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
First Michigan Bank Corporation
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement by and among FMB-Trust (the "Adviser"),
FMB Funds, Inc. (the "Company") on behalf of the FMB Money Market Fund (the
"Fund"), and First Michigan Bank Corporation (the "Sub-Adviser") as follows:
1. The Company is a registered open-end management investment company
currently consisting of four investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company engages in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment objective
and restrictions specified in the Company's currently effective prospectus and
statement of additional information incorporated by reference therein relating
to the Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company Act
of 1940 (the "Act") and the Securities Act of 1933. Copies of the documents
referred to in the preceding sentence have been furnished to the Sub-Adviser.
Any amendments to those documents shall be furnished to the Sub-Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in the Advisory Contract, of even date herewith, subject to
the overall supervision of the Board of Directors of the Company. Pursuant to
an administration agreement between the Company and the Company's administrator
(the "Administrator") on behalf of the Fund, the Company has engaged the
Administrator to provide the administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for the
Fund certain advisory services and the Sub-
<PAGE> 2
2
Adviser hereby accepts such employment. The Adviser shall retain the authority
to establish and modify from time to time the investment strategies and
approaches followed by the Sub-Adviser, subject, in all respects, to the
supervision and direction of the Company's Board of Directors and subject to
compliance with the investment objective, policies and restrictions set forth
in the Prospectus.
(b) Subject to the overall supervision and control of the Adviser and
the Company and subject to the right of the Adviser or the Company to re-assign
any of such responsibilities to the Adviser, the Sub-Adviser shall be
responsible for monitoring the approved list which is used for the selection of
broker/dealers to execute portfolio security transactions, coordinating the
portfolio managers' discussion regarding investment analysis, trends, selection
and strategies, maintaining approved lists for repurchase dealers and commercial
paper issuers, obtaining and analyzing performance and market pricing
information, and performing such other investment management and related
research, analysis and record-keeping services as shall be delegated to it from
time to time by the Adviser.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for the Sub-Adviser's fees for its
services hereunder, and the Sub-Adviser agrees that it shall have no claim
against the Company or the Fund respecting compensation under this Agreement.
The Adviser and the Sub-Adviser shall separately agree on their rights with
respect to each other for fees and other compensation hereunder and for
contribution and reimbursement in the event they are obligated to pay or
reimburse the Company or the Fund hereunder. In no event shall such
compensation be unreasonable in amount in comparison to other charges by the
Sub-Adviser for like services to similar customers.
5. The Sub-Adviser shall give the Company the benefit of the
Sub-Adviser's best judgment and efforts in rendering services under this
contract. As consideration and an inducement to the Sub-Adviser's undertaking
to render these services, the Company and the Adviser agree that the Sub-Adviser
shall not be liable under this contract for any mistake in judgment or in any
other event whatsoever except for lack of good faith, provided that nothing in
this contract shall be deemed to protect or purport to protect the Sub-Adviser
against any liability to the Adviser, the Company or its shareholders to which
the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Sub-Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
<PAGE> 3
2
6. This contract shall become effective as of its execution date and
shall thereafter continue in effect only so long as the continuance is
specifically approved at least annually (a) by the vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by the Company's
Board of Directors and (b) by the vote, cast in person at a meeting called for
the purpose, of a majority of the Company's directors who are not parties to
this contract or "interested persons" (as defined in the Act) of any such party.
This contract may be terminated at any time by the Company, without the payment
of any penalty, by a vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by a vote of a majority of the Company's
entire Board of Directors on 60 days' written notice to the Sub- Adviser or by
the Sub-Adviser on 60 days' written notice to the Company. This contract shall
terminate automatically in the event of its assignment (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Sub-Adviser and the Company each agree that the acronym "FMB,"
which comprises a component of the Company's name, is a property right of the
parent of the Adviser. The Company and the Sub-Adviser agree and consent that
the use of such word is subject to the provisions set forth in the Advisory
Contract between the Adviser and the Company.
9. This contract shall be governed by and construed in accordance with
the laws of the State of Michigan.
If the foregoing correctly sets forth the agreement between the Company
and the Sub-Adviser, please so indicate by signing and returning to the Company
the enclosed copy hereof.
Very truly yours,
FMB-TRUST
By: _____________________________
Name: _____________________________
Title: _____________________________
<PAGE> 4
4
ACCEPTED as of the date
set forth above:
FMB FUNDS, INC.
on behalf of
the FMB Money Market Fund
By: __________________________
Name: __________________________
Title: __________________________
FIRST MICHIGAN BANK CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
<PAGE> 1
AMENDED AND RESTATED SUB-ADVISORY CONTRACT
FMB Intermediate Government Income Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
First Michigan Bank Corporation
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement by and among FMB-Trust (the "Adviser"),
FMB Funds, Inc. (the "Company") on behalf of the FMB Intermediate Government
Income Fund (the "Fund"), and First Michigan Bank Corporation (the
"Sub-Adviser") as follows:
1. The Company is a registered open-end management investment company
currently consisting of four investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company engages in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment objective
and restrictions specified in the Company's currently effective prospectus and
statement of additional information incorporated by reference therein relating
to the Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company Act
of 1940 (the "Act") and the Securities Act of 1933. Copies of the documents
referred to in the preceding sentence have been furnished to the Sub-Adviser.
Any amendments to those documents shall be furnished to the Sub-Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in the Advisory Contract, of even date herewith, subject to
the overall supervision of the Board of Directors of the Company. Pursuant to
an administration agreement between the Company and the Company's administrator
(the "Administrator") on behalf of the Fund, the Company has engaged the
Administrator to provide the administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for the
Fund certain advisory services and the Sub-
<PAGE> 2
2
Adviser hereby accepts such employment. The Adviser shall retain the authority
to establish and modify from time to time the investment strategies and
approaches followed by the Sub-Adviser, subject, in all respects, to the
supervision and direction of the Company's Board of Directors and subject to
compliance with the investment objective, policies and restrictions set forth
in the Prospectus.
(b) Subject to the overall supervision and control of the Adviser and
the Company and subject to the right of the Adviser or the Company to re-assign
any of such responsibilities to the Adviser, the Sub-Adviser shall be
responsible for monitoring the approved list which is used for the selection of
broker/dealers to execute portfolio security transactions, coordinating the
portfolio managers' discussion regarding investment analysis, trends, selection
and strategies, maintaining approved lists for repurchase dealers and commercial
paper issuers, obtaining and analyzing performance and market pricing
information, and performing such other investment management and related
research, analysis and record-keeping services as shall be delegated to it from
time to time by the Adviser.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for the Sub-Adviser's fees for its
services hereunder, and the Sub-Adviser agrees that it shall have no claim
against the Company or the Fund respecting compensation under this Agreement.
The Adviser and the Sub-Adviser shall separately agree on their rights with
respect to each other for fees and other compensation hereunder and for
contribution and reimbursement in the event they are obligated to pay or
reimburse the Company or the Fund hereunder. In no event shall such
compensation be unreasonable in amount in comparison to other charges by the
Sub-Adviser for like services to similar customers.
5. The Sub-Adviser shall give the Company the benefit of the
Sub-Adviser's best judgment and efforts in rendering services under this
contract. As consideration and an inducement to the Sub-Adviser's undertaking
to render these services, the Company and the Adviser agree that the Sub-Adviser
shall not be liable under this contract for any mistake in judgment or in any
other event whatsoever except for lack of good faith, provided that nothing in
this contract shall be deemed to protect or purport to protect the Sub-Adviser
against any liability to the Adviser, the Company or its shareholders to which
the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Sub-Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
<PAGE> 3
3
6. This contract shall become effective as of its execution date and
shall thereafter continue in effect only so long as the continuance is
specifically approved at least annually (a) by the vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by the Company's
Board of Directors and (b) by the vote, cast in person at a meeting called for
the purpose, of a majority of the Company's directors who are not parties to
this contract or "interested persons" (as defined in the Act) of any such party.
This contract may be terminated at any time by the Company, without the payment
of any penalty, by a vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by a vote of a majority of the Company's
entire Board of Directors on 60 days' written notice to the Sub- Adviser or by
the Sub-Adviser on 60 days' written notice to the Company. This contract shall
terminate automatically in the event of its assignment (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Sub-Adviser and the Company each agree that the acronym "FMB,"
which comprises a component of the Company's name, is a property right of the
parent of the Adviser. The Company and the Sub-Adviser agree and consent that
the use of such word is subject to the provisions set forth in the Advisory
Contract between the Adviser and the Company.
9. This contract shall be governed by and construed in accordance with
the laws of the State of Michigan.
If the foregoing correctly sets forth the agreement between the Company
and the Sub-Adviser, please so indicate by signing and returning to the Company
the enclosed copy hereof.
Very truly yours,
FMB-TRUST
By: _____________________________
Name: _____________________________
Title: _____________________________
<PAGE> 4
4
ACCEPTED as of the date
set forth above:
FMB FUNDS, INC.
on behalf of
the FMB Intermediate Government Income Fund
By: __________________________
Name: __________________________
Title: __________________________
FIRST MICHIGAN BANK CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
<PAGE> 1
AMENDED AND RESTATED SUB-ADVISORY CONTRACT
FMB Michigan Tax-Free Bond Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
First Michigan Bank Corporation
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement by and among FMB-Trust (the "Adviser"),
FMB Funds, Inc. (the "Company") on behalf of the FMB Michigan Tax-Free Bond Fund
(the "Fund"), and First Michigan Bank Corporation (the "Sub-Adviser") as
follows:
1. The Company is a registered open-end management investment company
currently consisting of four investment portfolios, but which may from time to
time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company engages in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment objective
and restrictions specified in the Company's currently effective prospectus and
statement of additional information incorporated by reference therein relating
to the Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company Act
of 1940 (the "Act") and the Securities Act of 1933. Copies of the documents
referred to in the preceding sentence have been furnished to the Sub-Adviser.
Any amendments to those documents shall be furnished to the Sub-Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing and
reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in the Advisory Contract, of even date herewith, subject to
the overall supervision of the Board of Directors of the Company. Pursuant to
an administration agreement between the Company and the Company's administrator
(the "Administrator") on behalf of the Fund, the Company has engaged the
Administrator to provide the administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for the
Fund certain advisory services and the Sub-
<PAGE> 2
2
Adviser hereby accepts such employment. The Adviser shall retain the authority
to establish and modify from time to time the investment strategies and
approaches followed by the Sub-Adviser, subject, in all respects, to the
supervision and direction of the Company's Board of Directors and subject to
compliance with the investment objective, policies and restrictions set forth
in the Prospectus.
(b) Subject to the overall supervision and control of the Adviser and
the Company and subject to the right of the Adviser or the Company to re-assign
any of such responsibilities to the Adviser, the Sub-Adviser shall be
responsible for monitoring the approved list which is used for the selection of
broker/dealers to execute portfolio security transactions, coordinating the
portfolio managers' discussion regarding investment analysis, trends, selection
and strategies, maintaining approved lists for repurchase dealers and commercial
paper issuers, obtaining and analyzing performance and market pricing
information, and performing such other investment management and related
research, analysis and record-keeping services as shall be delegated to it from
time to time by the Adviser.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for the Sub-Adviser's fees for its
services hereunder, and the Sub-Adviser agrees that it shall have no claim
against the Company or the Fund respecting compensation under this Agreement.
The Adviser and the Sub-Adviser shall separately agree on their rights with
respect to each other for fees and other compensation hereunder and for
contribution and reimbursement in the event they are obligated to pay or
reimburse the Company or the Fund hereunder. In no event shall such
compensation be unreasonable in amount in comparison to other charges by the
Sub-Adviser for like services to similar customers.
5. The Sub-Adviser shall give the Company the benefit of the
Sub-Adviser's best judgment and efforts in rendering services under this
contract. As consideration and an inducement to the Sub-Adviser's undertaking
to render these services, the Company and the Adviser agree that the Sub-Adviser
shall not be liable under this contract for any mistake in judgment or in any
other event whatsoever except for lack of good faith, provided that nothing in
this contract shall be deemed to protect or purport to protect the Sub-Adviser
against any liability to the Adviser, the Company or its shareholders to which
the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Sub-Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
<PAGE> 3
3
6. This contract shall become effective as of its execution date and
shall thereafter continue in effect only so long as the continuance is
specifically approved at least annually (a) by the vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by the Company's
Board of Directors and (b) by the vote, cast in person at a meeting called for
the purpose, of a majority of the Company's directors who are not parties to
this contract or "interested persons" (as defined in the Act) of any such party.
This contract may be terminated at any time by the Company, without the payment
of any penalty, by a vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by a vote of a majority of the Company's
entire Board of Directors on 60 days' written notice to the Sub- Adviser or by
the Sub-Adviser on 60 days' written notice to the Company. This contract shall
terminate automatically in the event of its assignment (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Sub-Adviser and the Company each agree that the acronym "FMB,"
which comprises a component of the Company's name, is a property right of the
parent of the Adviser. The Company and the Sub-Adviser agree and consent that
the use of such word is subject to the provisions set forth in the Advisory
Contract between the Adviser and the Company.
9. This contract shall be governed by and construed in accordance with
the laws of the State of Michigan.
If the foregoing correctly sets forth the agreement between the Company
and the Sub-Adviser, please so indicate by signing and returning to the Company
the enclosed copy hereof.
Very truly yours,
FMB-TRUST
By: _____________________________
Name: _____________________________
Title: _____________________________
<PAGE> 4
4
ACCEPTED as of the date
set forth above:
FMB FUNDS, INC.
on behalf of
the FMB Michigan Tax-Free Bond Fund
By: __________________________
Name: __________________________
Title: __________________________
FIRST MICHIGAN BANK CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
<PAGE> 1
AMENDED AND RESTATED SUB-ADVISORY CONTRACT
FMB Diversified Equity Fund
a portfolio of
FMB FUNDS, INC.
P.O. Box 8526
Boston, MA 02266-8526
April 1, 1996
First Michigan Bank Corporation
One Financial Plaza
Holland, Michigan 49423
Dear Sirs:
This will confirm the agreement by and among FMB-Trust (the "Adviser"),
FMB Funds, Inc. (the "Company") on behalf of the FMB Diversified Equity Fund
(the "Fund"), and First Michigan Bank Corporation (the "Sub-Adviser") as
follows:
1. The Company is a registered open-end management investment
company currently consisting of four investment portfolios, but which may from
time to time consist of a greater or lesser number of investment portfolios (the
"Funds"). The Company engages in the business of investing and reinvesting the
assets of the Fund in the manner and in accordance with the investment objective
and restrictions specified in the Company's currently effective prospectus and
statement of additional information incorporated by reference therein relating
to the Fund and the Company (such prospectus and such statement of additional
information being collectively referred to as the "Prospectus") included in the
Company's Registration Statement, as amended from time to time (the
"Registration Statement"), filed by the Company under the Investment Company Act
of 1940 (the "Act") and the Securities Act of 1933. Copies of the documents
referred to in the preceding sentence have been furnished to the Sub-Adviser.
Any amendments to those documents shall be furnished to the Sub-Adviser
promptly.
2. The Company has engaged the Adviser to manage the investing
and reinvesting of the assets of the Fund and to provide the advisory services
specified elsewhere in the Advisory Contract, of even date herewith, subject to
the overall supervision of the Board of Directors of the Company. Pursuant to an
administration agreement between the Company and the Company's administrator
(the "Administrator") on behalf of the Fund, the Company has engaged the
Administrator to provide the administrative services specified therein.
3. (a) The Adviser hereby employs the Sub-Adviser to perform for
the Fund certain advisory services and the Sub-
<PAGE> 2
2
Adviser hereby accepts such employment. The Adviser shall retain the authority
to establish and modify from time to time the investment strategies and
approaches followed by the Sub-Adviser, subject, in all respects, to the
supervision and direction of the Company's Board of Directors and subject to
compliance with the investment objective, policies and restrictions set forth
in the Prospectus.
(b) Subject to the overall supervision and control of the Adviser and
the Company and subject to the right of the Adviser or the Company to re-assign
any of such responsibilities to the Adviser, the Sub-Adviser shall be
responsible for monitoring the approved list which is used for the selection of
broker/dealers to execute portfolio security transactions, coordinating the
portfolio managers' discussion regarding investment analysis, trends, selection
and strategies, maintaining approved lists for repurchase dealers and commercial
paper issuers, obtaining and analyzing performance and market pricing
information, and performing such other investment management and related
research, analysis and record-keeping services as shall be delegated to it from
time to time by the Adviser.
(c) The Sub-Adviser shall, at its expense, employ or associate with
itself such persons as the Sub-Adviser believes appropriate to assist it in
performing its obligations under this contract.
4. The Adviser shall be responsible for the Sub-Adviser's fees
for its services hereunder, and the Sub-Adviser agrees that it shall have no
claim against the Company or the Fund respecting compensation under this
Agreement. The Adviser and the Sub-Adviser shall separately agree on their
rights with respect to each other for fees and other compensation hereunder and
for contribution and reimbursement in the event they are obligated to pay or
reimburse the Company or the Fund hereunder. In no event shall such
compensation be unreasonable in amount in comparison to other charges by the
Sub-Adviser for like services to similar customers.
5. The Sub-Adviser shall give the Company the benefit of the
Sub-Adviser's best judgment and efforts in rendering services under this
contract. As consideration and an inducement to the Sub-Adviser's undertaking
to render these services, the Company and the Adviser agree that the Sub-Adviser
shall not be liable under this contract for any mistake in judgment or in any
other event whatsoever except for lack of good faith, provided that nothing in
this contract shall be deemed to protect or purport to protect the Sub-Adviser
against any liability to the Adviser, the Company or its shareholders to which
the Sub-Adviser would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Sub-Adviser's duties under
this contract or by reason of reckless disregard of its obligations and duties
hereunder.
<PAGE> 3
3
6. This contract shall become effective as of its execution date
and shall thereafter continue in effect only so long as the continuance is
specifically approved at least annually (a) by the vote of a majority of the
Fund's outstanding voting securities (as defined in the Act) or by the Company's
Board of Directors and (b) by the vote, cast in person at a meeting called for
the purpose, of a majority of the Company's directors who are not parties to
this contract or "interested persons" (as defined in the Act) of any such party.
This contract may be terminated at any time by the Company, without the payment
of any penalty, by a vote of a majority of the Fund's outstanding voting
securities (as defined in the Act) or by a vote of a majority of the Company's
entire Board of Directors on 60 days' written notice to the Sub-Adviser or by
the Sub-Adviser on 60 days' written notice to the Company. This contract shall
terminate automatically in the event of its assignment (as defined in the Act).
7. Except to the extent necessary to perform the Sub-Adviser's
obligations under this contract, nothing herein shall be deemed to limit or
restrict the right of the Sub-Adviser, or any affiliate of the Sub-Adviser, or
any employee of the Sub-Adviser, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. The Sub-Adviser and the Company each agree that the acronym
"FMB," which comprises a component of the Company's name, is a property right of
the parent of the Adviser. The Company and the Sub-Adviser agree and consent
that the use of such word is subject to the provisions set forth in the Advisory
Contract between the Adviser and the Company.
9. This contract shall be governed by and construed in accordance
with the laws of the State of Michigan.
If the foregoing correctly sets forth the agreement between the Company
and the Sub-Adviser, please so indicate by signing and returning to the Company
the enclosed copy hereof.
Very truly yours,
FMB-TRUST
By: _____________________________
Name: _____________________________
Title: _____________________________
<PAGE> 4
4
ACCEPTED as of the date
set forth above:
FMB FUNDS, INC.
on behalf of
the FMB Diversified Equity Fund
By: __________________________
Name: __________________________
Title: __________________________
FIRST MICHIGAN BANK CORPORATION
By: __________________________
Name: __________________________
Title: __________________________
<PAGE> 1
[BANKERS TRUST COMPANY LETTERHEAD]
CUSTODIAN AGREEMENT
AGREEMENT dated as of February 5, 1997, between Bankers Trust Company
(the "Custodian") and FMB Funds, Inc. (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
non-cash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the account of such Portfolio. Upon
delivery by the Customer to the Custodian of any Property belonging to a
Portfolio, the Customer shall, by Instructions (as hereinafter defined in
Section 14), specifically indicate which Portfolio such Property belongs or if
such Property belongs to more than one Portfolio shall allocate such Property to
the
- 1 -
<PAGE> 2
appropriate Portfolio. The Custodian shall allocate such Property to the
Accounts in accordance with the Instructions; provided that the Custodian shall
have the right, in its sole discretion, to refuse to accept any Property that is
not in proper form for deposit for any reason. The Customer on behalf of each
Portfolio, acknowledges its responsibility as a principal for all of its
obligations to the Custodian arising under or in connection with this Agreement,
warrants its authority to deposit in the appropriate Account any Property
received therefor by the Custodian or a Subcustodian and to give, and authorize
others to give, instructions relative thereto. The Custodian may deliver
securities of the same class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the appropriate
Account;
(b) present for payment all Securities held in an Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment
upon presentation to the extent that the Custodian or
Subcustodian is actually aware of such opportunities and hold
the cash received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
an Account, endeavor to receive Instructions, provided that if
such Instructions are not received in time for the Custodian
to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for an Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale;
(e) execute in the Customer's name for an Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any
- 2 -
<PAGE> 3
governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes
and instructs the Custodian to hold the Property in each Account in custody
accounts which have been established by the Custodian with (a) one of its U.S.
branches or another U.S. bank or trust company or branch thereof located in the
U.S. which is itself qualified under the Investment Company Act of 1940, as
amended ("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"),
or a U.S. securities depository or clearing agency or system in which the
Custodian or a U.S. Subcustodian participates (individually, a "U.S. Securities
System") or (b) one of its non-U.S. branches or majority-owned non-U.S.
subsidiaries, a non-U.S. branch or majority-owned subsidiary of a U.S. bank or a
non-U.S. bank or trust company, acting as custodian (individually, a "non-U.S.
Subcustodian"; U.S. Subcustodians and non-U.S. Subcustodians, collectively,
"Subcustodians"), or a non-U.S. depository or clearing agency or system in which
the Custodian or any Subcustodian participates (individually, a "non-U.S.
Securities System"; U.S. Securities System and non-U.S. Securities System,
collectively, Securities System"), provided that in each case in which a U.S.
Subcustodian or U.S. Securities System is employed, each such Subcustodian or
Securities System shall have been approved by Instructions; provided further
that in each case in which a non-U.S. Subcustodian or non-U.S. Securities System
is employed, (a) such Subcustodian or Securities System either is (i) a
"qualified U.S. bank" as defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5")
or (ii) an "eligible foreign custodian" within the meaning of Rule 17f-5 or such
Subcustodian or Securities System is the subject of an order granted by the U.S.
Securities and Exchange Commission ("SEC") exempting such agent or the
subcustody arrangements thereto from all or part of the provisions of Rule 17f-5
and (b) the agreement between the Custodian and such non-U.S. Subcustodian has
been approved by Instructions; it being understood that the Custodian shall have
no liability or responsibility for determining whether the approval of any
Subcustodian or Securities System has been proper under the 1940 Act or any rule
or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, such other
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information relating to such non-U.S. Subcustodians and non-U.S. Securities
Systems as may reasonably be requested by the Customer to ensure compliance with
Rule 17f-5. So long as Rule 17f-5 requires the Customer's Board of Directors to
directly approve its foreign custody arrangements, the Custodian also shall
furnish annually to the Customer information concerning such non-U.S.
Subcustodians and non-U.S. Securities Systems similar in kind and scope as that
furnished to the Customer in connection with the initial approval of this
Agreement. Custodian agrees to promptly notify the Customer if, in the normal
course of its custodial activities, the Custodian has reason to believe that any
non-U.S. Subcustodian or non-U.S. Securities System has ceased to be a qualified
U.S. bank or an eligible foreign custodian each within the meaning of Rule 17f-5
or has ceased to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account
which is maintained by the Custodian in the custody of a Subcustodian employed
pursuant to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such
Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities are not
subject to any right, charge, security interest, lien or claim
of any kind in favor of such Subcustodian or its creditors
except a claim for payment in accordance with such agreement
for their safe custody or administration and expenses related
thereto, (iii) beneficial ownership of such Securities be
freely transferable without the payment of money or value
other than for safe custody or administration and expenses
related thereto, (iv) adequate records will be maintained
identifying the Property held pursuant to such Agreement as
belonging to the Custodian, on behalf of its customers and (v)
to the extent permitted by applicable law, officers of or
auditors employed by, or other representatives of or
designated by, the Custodian, including the independent public
accountants of or designated by, the Customer be given access
to the books and records of such Subcustodian relating to its
actions under its agreement pertaining to any Property held by
it thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such
persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the
Account(s) which are maintained by the Custodian or any Subcustodian in the
custody of a Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books
such Property as being held for the account of the Custodian
or Subcustodian for its customers.
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<PAGE> 5
(b) Any Property held in a Securities System for the account of
the Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the
case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of
Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a Subcustodian or in a
Securities System as authorized herein, shall be clearly recorded on the
Custodian's books as belonging to the appropriate Account and not for the
Custodian's own interest. The Custodian shall keep accurate and detailed
accounts of all investments, receipts, disbursements and other transactions for
each Account. All accounts, books and records of the Custodian relating thereto
shall be open to inspection and audit at all reasonable times during normal
business hours by any person designated by the Customer. All such accounts shall
be maintained and preserved in the form reasonably requested by the Customer.
The Custodian will supply to the Customer from time to time, as mutually agreed
upon, a statement in respect to any Property in an Account held by the Custodian
or by a Subcustodian. In the absence of the filing in writing with the Custodian
by the Customer of exceptions or objections to any such statement within sixty
(60) days of the mailing thereof, the Customer shall be deemed to have approved
such statement and in such case or upon written approval of the Customer of any
such statement, such statement shall be presumed to be for all purposes correct
with respect to all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Cash and
Securities, including Cash and Securities deposited and/or maintained in a
securities system or with a Subcustodian. Such report shall be
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<PAGE> 6
of sufficient scope and in sufficient detail as may reasonably be required by
the Customer and as may reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on hard copy various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such service shall include
market values of Securities in an Account, the Customer hereby acknowledges that
the Custodian now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in an Account
which are held by the Custodian or any Subcustodian may be held by such entity
in the name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
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<PAGE> 7
12. Settlement Procedures. Securities will be transferred, exchanged
or delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Investment Manager User Guide provided to the Customer by the Custodian, the
Custodian may, at its sole option, reverse such credits or debits to the
appropriate Account in the event that the transaction does not settle, or the
income is not received in a timely manner, and the Customer agrees to hold the
Custodian harmless from any losses which may result therefrom.
Except as otherwise may be agreed upon by the parties hereto, the
Custodian shall not be required to comply with Instructions to settle the
purchase of any Securities for an Account unless there is sufficient Cash in
such Account at the time or to settle the sale of any Securities in such Account
unless such Securities are in deliverable form. Notwithstanding the foregoing,
if the purchase price of such securities exceeds the amount of Cash in an
Account at the time of settlement of such purchase, the Custodian may, in its
sole discretion, but in no way shall have any obligation to, permit an overdraft
in such Account in the amount of the difference solely for the purpose of
facilitating the settlement of such purchase of securities for prompt delivery
for such Account. The Customer agrees to immediately repay the amount of any
such overdraft in the ordinary course of business and further agrees to
indemnify and hold the Custodian harmless from and against any and all losses,
costs, including, without limitation the cost of funds, and expenses incurred in
connection with such overdraft. The Customer agrees that it will not use the
Account to facilitate the purchase of securities without sufficient funds in the
Account (which funds shall not include the proceeds of the sale of the purchased
securities).
13. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 14 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
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<PAGE> 8
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the Custodian, a Subcustodian
or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, on behalf of a Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission and of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
14. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose name and (if
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<PAGE> 9
applicable) signature and office address have been filed with the Custodian, or
(ii) which have been transmitted electronically through an electronic on-line
service and communications system offered by the Custodian or other electronic
instruction system acceptable to the Custodian, or (iii) a telephonic or oral
communication by one or more persons as the Customer shall have from time to
time authorized to give the particular class of Instructions in question and
whose name has been filed with the Custodian; or (iv) upon receipt of such other
form of instructions as the Customer may from time to time authorize in writing
and which the Custodian has agreed in writing to accept. Instructions in the
form of oral communications shall be confirmed by the Customer by tested telex
or writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the Custodian in
reliance upon such oral instructions prior to the Custodian's receipt of such
confirmation. Instructions may relate to specific transactions or to types or
classes of transactions, and may be in the form of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
15. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and
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<PAGE> 10
expenses (including the fees and expenses of counsel) incurred by the Custodian
as a result of any improper or unauthorized use of such terminal by the Customer
or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
16. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
17. Fees and Expenses. The Customer agrees to pay to the Custodian
such compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in an Account and also agrees to hold the Custodian, its
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in such Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable Account for any amount payable to the Custodian under
this Agreement, including but not limited to amounts payable pursuant to the
last
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<PAGE> 11
paragraph of Section 12 and pursuant to indemnities granted by the Customer
under this Agreement. The provisions of this Section shall survive the
termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
20. Termination. (a) Termination of Entire Agreement. This Agreement
may be terminated by the Customer or the Custodian by ninety (90) days' written
notice to the other; provided that notice by the Customer shall specify the
names of the persons to whom the Custodian shall deliver the Securities in each
Account and to whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall, within ninety (90)
days following the giving of such notice, deliver to the Custodian a written
notice specifying the names of the persons to whom the Custodian shall deliver
the Securities in each Account and to whom the Cash in such Account shall be
paid. In either case, the Custodian will deliver such Securities and Cash to the
persons so specified, after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 12, 17, and 23. In addition, the
Custodian may in its discretion withhold from such delivery such Cash and
Securities as may be necessary to settle transactions pending at the time of
such delivery. The Customer grants to the Custodian a lien and right of setoff
against the Account and all Property held therein from time to time in the full
amount of the foregoing obligations. If within ninety (90) days following the
giving of a notice of termination by the Custodian, the Custodian does not
receive from the Customer a written notice specifying the names of the persons
to whom the Custodian shall deliver the Securities in each Account and to whom
the Cash in such Account shall be paid, the Custodian, at its election, may
deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions of this Agreement, or may continue to hold such Securities and Cash
until a written notice as aforesaid is delivered to the Custodian, provided that
the Custodian's obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may be
terminated by the Customer or the Custodian as to one or more Portfolios (but
less than all of the Portfolios) by delivery of an amended Exhibit A deleting
such Portfolios, in which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery, or such earlier
time as mutually agreed. The execution and delivery of an amended Exhibit A
which deletes one or more Portfolios shall constitute a termination of this
Agreement only with respect to such deleted Portfolio(s), shall be governed by
the preceding provisions of Section 20 as to the identification of a successor
custodian and the delivery of Cash and Securities of the Portfolio(s) so deleted
to such successor custodian, and shall not affect the obligations of the
Custodian and the Customer hereunder with respect to the other Portfolios set
forth in Exhibit A, as amended from time to time.
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<PAGE> 12
21. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by telex,
telegram, cable, facsimile or other means of electronic communication agreed
upon by the parties hereto addressed, if to the Customer, to:
SEI Financial Services Corporation
Attn: Michael Lawson
530 East Swedesford Road
Wayne, PA 19087
Phone: 610-989-6211
Fax: 610-989-6512
if to the Custodian, to:
Bankers Trust Company
Attention: Paul Gambetta
16 Wall Street, 4th Floor
New York, New York 10005
Phone: 212-618-3424
Fax: 212-618-3424
or in either case to such other address as shall have been furnished to the
receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received, or, in the case of a telex, when sent to the proper
number and acknowledged by a proper answerback.
22. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations; provided that,
if there is more than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Portfolio related to such
Account, such security interest and right of setoff will be limited to Property
held for that Account only and its related Portfolio. Should the Customer fail
to pay promptly any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or applicable Account, as the case may be, and to
dispose of Securities in the Account or such applicable Account as is necessary.
In any such case and without limiting the foregoing, Custodian shall be entitled
to take such other action(s) or exercise such other options, powers and rights
as Custodian now or hereafter has as a secured creditor under the New York
Uniform Commercial Code or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
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<PAGE> 13
(i) the employment of the Custodian and the allocation of fees,
expenses and other charges to any Account as herein provided, is not prohibited
by law or any governing documents or contracts to which the Customer is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian such evidence of
such authorization as the Custodian may reasonably require, whether by way of a
certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which the Custodian is bound, whether arising by contract, operation of law
or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Custodian in
accordance with its terms;
(iii) the Custodian will deliver to the Customer such evidence of
such authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so qualified or upon ceasing to
be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
26. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 21 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
27. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
- 13 -
<PAGE> 14
28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
29. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation.
30. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
- 14 -
<PAGE> 15
31. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
Dated as of: Februry 5, 1997 FMB Funds, Inc.
By: /s/ Todd Cipperman
---------------------------------
Name: Todd Cipperman
-------------------------------
Title: Vice President & Secretary
------------------------------
By: /s/ Marc Cahn
---------------------------------
Name: Marc Cahn
-------------------------------
Title: Vice President & Assistant Secretary
------------------------------
Bankers Trust Company
By: /s/ Richard Quintal
---------------------------------
Name: Richard Quintal
Title: Managing Director
- 15 -
<PAGE> 16
EXHIBIT A
To Custodian Agreement dated as of February 5, 1997, between Bankers
Trust Company and FMB Funds, Inc.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
FMB Money Market Fund
FMB Intermediate Government Income Fund
FMB Michigan Tax-Free Bond Fund
FMB Diversified Equity Fund
Dated as of: February 5, 1997 FMB Funds, Inc.
By: /s/ Todd Cipperman
---------------------------------
Name: Todd Cipperman
-------------------------------
Title: Vice President & Secretary
------------------------------
Bankers Trust Company
By: /s/ Richard Quintal
---------------------------------
Name: Richard Quintal
Title: Managing Director
<PAGE> 17
EXHIBIT B
To Custodian Agreement dated as of February 5, 1997, between Bankers
Trust Company and FMB Funds, Inc.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in Argentina, Australia, Austria, Canada, Denmark, Finland,
France, Germany, Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland, Singapore, South
Africa, Spain, Sri Lanka, Sweden, United Kingdom, United States, and Venezuela.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless
requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important.
<PAGE> 18
Upon timely receipt of voting instructions, the Custodian will promptly forward
such instructions to the applicable Subcustodian. If voting instructions are not
timely received, the Custodian shall have no liability or obligation to take any
action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit B will be deemed to be automatically
amended to include or delete such countries as the case may be.
Dated as of: February 5, 1997 FMB Funds, Inc.
By: /s/ Todd Cipperman
---------------------------------
Name: Todd Cipperman
-------------------------------
Title: Vice President & Secretary
------------------------------
Bankers Trust Company
By: /s/ Richard Quintal
---------------------------------
Name: Richard Quintal
Title: Managing Director
- 2 -
<PAGE> 19
EXHIBIT C
US CUSTODY FEE SCHEDULE
To Custodian Agreement dated as of February 5, 1997, between Bankers
Trust Company and FMB Funds,Inc.
<TABLE>
<S> <C>
Account Maintenance 1 $200 first account
14 no charge for
additional affiliate accounts
$50 per fund account
Holdings
Physical $ 2.50
Depository $ 1.25
Transactions *
Physical Receive/Deliver $ 15.00
DTC Receive/Deliver $ 6.00
FBE Receive/Deliver $ 7.00
PTC Receive/Deliver $ 7.00
P&I Payments $ 3.00
Maturities $ 10.00
Reorganizations $ 30.00
Globe*View Usage $200.00 per month
(per relationship)
Wires
Funds Received $ 6.00
Drawdowns $ 6.00
Fed Surcharge $ 0.53
DDA Account Maintenance $ 60.00
Debit/Credit Postings $ 0.40
Balance Reporting $125.00 per month
</TABLE>
* THERE WILL BE A $5.00 ADDITIONAL FEE FOR ANY TICKET INPUT BY BANKERS TRUST.
NOTE: EXCLUDES OUT-OF-POCKET EXPENSES SUCH AS POSTAGE & HANDLING, INSURANCE AND
AGENT FEES.
<PAGE> 20
This Exhibit C shall be amended upon delivery by the Custodian of a new
Exhibit C to the Customer and acceptance thereof by the Customer and shall be
effective as of the date of acceptance by the Customer or a date agreed upon
between the Custodian and the Customer.
- 2 -
<PAGE> 21
EXHIBIT D
To Custodian Agreement dated as of February 5, 1997, between Bankers
Trust Company and FMB Funds, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
<PAGE> 22
Dated as of: February 5, 1997 FMB Funds, Inc.
By: /s/ Todd Cipperman
---------------------------------
Name: Todd Cipperman
-------------------------------
Title: Vice President & Secretary
------------------------------
Bankers Trust Company
By: /s/ Richard Quintal
---------------------------------
Name: Richard Quintal
Title: Managing Director
- 2 -
<PAGE> 1
CONSENT TO ASSIGNMENT AND ASSUMPTION
1. SEI Financial Management Corporation ("Assignor") hereby notifies FMB
Funds, Inc. ("Company") that it intends to assign all of its rights and
delegate its obligations under (i) the Administration Agreement between
FMB Funds Inc. and SEI Financial Management Corporation and (ii) the
Transfer Agency and Service Agreement between FMB Funds Inc. and SEI
Financial Management Corporation both dated March 23, 1996 (the
"Agreements") to SEI Fund Resources, (the "Assignment and Assumption
Agreement"), no later than August 1, 1996, in connection with the
transition of Assignor's fund administration and distribution business
to SEI Fund Resources ("Assignee");
2. The Company releases Assignor from its rights and obligations under the
Agreements on or after the date the Assignment and Assumption Agreement
is executed and any liability or responsibility for (i) breach of the
Agreements by Assignee or (ii) demands and claims made against the
Company or damages, losses or expenses incurred by the Company on or
after the date of the Assignment and Assumption Agreement, unless such
demands, claims, losses, damages or expenses arose out of or resulted
from an act or omission of Assignor prior to the date of the Assignment
and Assumption Agreement.
3. This consent is not a waiver or estoppel with respect to any rights the
Company may have by reason of the past performance or failure to perform
by Assignor.
4. This consent is conditioned upon the execution of an Assignment and
Assumption Agreement between Assignor and Assignee that require(s)
Assignee (i) to assume all rights and obligations of Assignor under the
Agreements and (ii) to be liable to the Company for any default or
breach of the Agreements to the extent the default or breach occurs on
or after the date of execution of the Assignment and Assumption
Agreement.
5. Except as provided herein, neither this consent nor the Assignment and
Assumption Agreement shall alter or modify the terms or conditions of
the Agreements.
Company: Assignor:
FMB Funds, Inc. SEI Financial Management Corporation
By: /s/ Todd Cipperman By: /s/ Mark Cahn
-------------------------- -----------------------------------
Title: Vice President & Secretary Title: Vice President & Assistant Secretary
-------------------------- ------------------------------------
Date: July 30, 1996 Date: July 30, 1996
<PAGE> 1
EXHIBIT (11)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 6 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated January 20, 1997, relating to the financial
statements and financial highlights of FMB Money Market Fund, FMB Intermediate
Government Income Fund, FMB Michigan Tax-Free Bond Fund and FMB Diversified
Equity Fund, constituting FMB Funds, Inc. (the "Fund"), appearing in the
November 30, 1996 Annual Report to Shareholders of The Fund, which is also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the
Prospectuses and under the headings "Independent Accountants," "Experts" and
"Financial Statements" in the Statement of Additional Information.
PRICE WATERHOUSE LLP
Philadelphia, PA
March 24, 1997
<PAGE> 1
AMENDED AND RESTATED DISTRIBUTION PLAN
FMB MONEY MARKET FUND
WHEREAS, FMB Funds, Inc. ("Company") is an open-end, management
investment company and is registered as such under the Investment Company Act of
1940, as amended ("Act"); and
WHEREAS, the Company adopted a Distribution Plan dated March 1, 1992
("Plan") pursuant to Rule 12b-1 under the Act on behalf of the Consumer Service
Class of the FMB Money Market Fund ("Fund"), and such Plan was approved by "vote
of a majority of the outstanding voting securities" of the Fund's Consumer
Service Class; and
WHEREAS, the Board of Directors, including a majority of the Qualified
Directors (as defined below) has determined to amend and restate the Plan;
NOW THEREFORE, the Plan is hereby amended and restated on the following
terms and conditions:
Section 1. Pursuant to the Plan, the Fund may reimburse the Company's
distributor ("Distributor"), monthly (subject to a limit of 0.25% per annum of
the Fund's Consumer Service Class' average daily net assets), for costs and
expenses of the Distributor in connection with the distribution of Fund shares
of its Consumer Service Class. These costs and expenses include (i) costs of
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising, (ii) expenses of sales
employees or agents of the Distributor, including salary, commissions, travel
and related expenses, (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares of the
Fund's Consumer Service Class, including promotional incentives and fees
calculated with reference to the average daily net asset value of shares of the
Fund's Consumer Service Class held by shareholders who have a brokerage or other
service relationship with the broker-dealer or other institution receiving such
fees, (iv) costs of printing prospectuses and other materials to be given or
sent to prospective investors in the Fund's Consumer Service Class and (v) such
other similar costs and expenses as the Directors determine to be reasonably
calculated to result in the sale of shares of the Fund's Consumer Service Class.
Section 2. Unless earlier terminated in accordance with its terms, the
Plan will continue in effect for so long as the continuance is specifically
approved at least annually by vote of a majority of both (a) the Directors of
the Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 3. The Company shall provide to the Company's Board of
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended by the Company under the Plan and each related agreement
and the purposes for which such expenditures were made.
<PAGE> 2
2
Section 4. The Plan may be terminated at any time by vote of a
majority of the Qualified Directors or by vote of a majority of the outstanding
voting securities of the Fund's Consumer Service Class.
Section 5. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting called for
the purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Qualified Directors or
by vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, on not more than 60 days' written
notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of
its "assignment" (as defined below).
Section 6. The Plan may not be amended to increase materially the
amount that may be expended by the Fund pursuant to the Plan without the
approval by a vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, and no material amendment to the Plan shall be
made unless approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 7. While the Plan is in effect, the selection and nomination
of each Director who is not an "interested person" (as defined below) of the
Company shall be committed to the discretion of the Directors who are not
interested persons.
Section 8. The Company shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan, such agreement or such report, as
the case may be, the first two years in an easily accessible place.
Section 9. As used in the Plan, (a) the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meanings specified in the Act and the
rules and regulations thereunder, subject to such exemption as may be granted by
the Securities and Exchange Commission, and (b) the term "Qualified Directors"
shall mean the Directors of the Company who are not interested persons of the
Company and have no direct or indirect financial interest in the operation of
the Plan or in any agreements related to the Plan.
Dated: March 31, 1992,
as amended and
restated as of
March 1, 1996
<PAGE> 1
AMENDED AND RESTATED DISTRIBUTION PLAN
FMB INTERMEDIATE GOVERNMENT INCOME FUND
WHEREAS, FMB Funds, Inc. ("Company") is an open-end, management
investment company and is registered as such under the Investment Company Act of
1940, as amended ("Act"); and
WHEREAS, the Company adopted a Distribution Plan dated March 1, 1992
("Plan") pursuant to Rule 12b-1 under the Act on behalf of the Consumer Service
Class of the FMB Intermediate Government Income Fund ("Fund"), and such Plan was
approved by "vote of a majority of the outstanding voting securities" of the
Fund's Consumer Service Class; and
WHEREAS, the Board of Directors, including a majority of the Qualified
Directors (as defined below) has determined to amend and restate the Plan;
NOW THEREFORE, the Plan is hereby amended and restated on the following
terms and conditions:
Section 1. Pursuant to the Plan, the Fund may reimburse the Company's
distributor ("Distributor"), monthly (subject to a limit of 0.35% per annum of
the Fund's Consumer Service Class' average daily net assets), for costs and
expenses of the Distributor in connection with the distribution of Fund shares
of its Consumer Service Class. These costs and expenses include (i) costs of
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising, (ii) expenses of sales
employees or agents of the Distributor, including salary, commissions, travel
and related expenses, (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares of the
Fund's Consumer Service Class, including promotional incentives and fees
calculated with reference to the average daily net asset value of shares of the
Fund's Consumer Service Class held by shareholders who have a brokerage or other
service relationship with the broker-dealer or other institution receiving such
fees, (iv) costs of printing prospectuses and other materials to be given or
sent to prospective investors in the Fund's Consumer Service Class and (v) such
other similar costs and expenses as the Directors determine to be reasonably
calculated to result in the sale of shares of the Fund's Consumer Service Class.
Section 2. Unless earlier terminated in accordance with its terms, the
Plan will continue in effect for so long as the continuance is specifically
approved at least annually by vote of a majority of both (a) the Directors of
the Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 3. The Company shall provide to the Company's Board of
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended by the Company under the Plan and each related agreement
and the purposes for which such expenditures were made.
<PAGE> 2
2
Section 4. The Plan may be terminated at any time by vote of a
majority of the Qualified Directors or by vote of a majority of the outstanding
voting securities of the Fund's Consumer Service Class.
Section 5. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting called for
the purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Qualified Directors or
by vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, on not more than 60 days' written
notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of
its "assignment" (as defined below).
Section 6. The Plan may not be amended to increase materially the
amount that may be expended by the Fund pursuant to the Plan without the
approval by a vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, and no material amendment to the Plan shall be
made unless approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 7. While the Plan is in effect, the selection and nomination
of each Director who is not an "interested person" (as defined below) of the
Company shall be committed to the discretion of the Directors who are not
interested persons.
Section 8. The Company shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan, such agreement or such report, as
the case may be, the first two years in an easily accessible place.
Section 9. As used in the Plan, (a) the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meanings specified in the Act and the
rules and regulations thereunder, subject to such exemption as may be granted by
the Securities and Exchange Commission, and (b) the term "Qualified Directors"
shall mean the Directors of the Company who are not interested persons of the
Company and have no direct or indirect financial interest in the operation of
the Plan or in any agreements related to the Plan.
Dated: March 31, 1992,
as amended and
restated as of
March 1, 1996
<PAGE> 1
AMENDED AND RESTATED DISTRIBUTION PLAN
FMB MICHIGAN TAX-FREE BOND FUND
WHEREAS, FMB Funds, Inc. ("Company") is an open-end, management
investment company and is registered as such under the Investment Company Act of
1940, as amended ("Act"); and
WHEREAS, the Company adopted a Distribution Plan dated March 1, 1992
("Plan") pursuant to Rule 12b-1 under the Act on behalf of the Consumer Service
Class of the FMB Michigan Tax-Free Bond Fund ("Fund"), and such Plan was
approved by "vote of a majority of the outstanding voting securities" of the
Fund's Consumer Service Class; and
WHEREAS, the Board of Directors, including a majority of the Qualified
Directors (as defined below) has determined to amend and restate the Plan;
NOW THEREFORE, the Plan is hereby amended and restated on the following
terms and conditions:
Section 1. Pursuant to the Plan, the Fund may reimburse the Company's
distributor ("Distributor"), monthly (subject to a limit of 0.35% per annum of
the Fund's Consumer Service Class' average daily net assets), for costs and
expenses of the Distributor in connection with the distribution of Fund shares
of its Consumer Service Class. These costs and expenses include (i) costs of
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising, (ii) expenses of sales
employees or agents of the Distributor, including salary, commissions, travel
and related expenses, (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares of the
Fund's Consumer Service Class, including promotional incentives and fees
calculated with reference to the average daily net asset value of shares of the
Fund's Consumer Service Class held by shareholders who have a brokerage or other
service relationship with the broker-dealer or other institution receiving such
fees, (iv) costs of printing prospectuses and other materials to be given or
sent to prospective investors in the Fund's Consumer Service Class and (v) such
other similar costs and expenses as the Directors determine to be reasonably
calculated to result in the sale of shares of the Fund's Consumer Service Class.
Section 2. Unless earlier terminated in accordance with its terms, the
Plan will continue in effect for so long as the continuance is specifically
approved at least annually by vote of a majority of both (a) the Directors of
the Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 3. The Company shall provide to the Company's Board of
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended by the Company under the Plan and each related agreement
and the purposes for which such expenditures were made.
<PAGE> 2
2
Section 4. The Plan may be terminated at any time by vote of a
majority of the Qualified Directors or by vote of a majority of the outstanding
voting securities of the Fund's Consumer Service Class.
Section 5. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting called for
the purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Qualified Directors or
by vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, on not more than 60 days' written
notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of
its "assignment" (as defined below).
Section 6. The Plan may not be amended to increase materially the
amount that may be expended by the Fund pursuant to the Plan without the
approval by a vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, and no material amendment to the Plan shall be
made unless approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 7. While the Plan is in effect, the selection and nomination
of each Director who is not an "interested person" (as defined below) of the
Company shall be committed to the discretion of the Directors who are not
interested persons.
Section 8. The Company shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan, such agreement or such report, as
the case may be, the first two years in an easily accessible place.
Section 9. As used in the Plan, (a) the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meanings specified in the Act and the
rules and regulations thereunder, subject to such exemption as may be granted by
the Securities and Exchange Commission, and (b) the term "Qualified Directors"
shall mean the Directors of the Company who are not interested persons of the
Company and have no direct or indirect financial interest in the operation of
the Plan or in any agreements related to the Plan.
Dated: March 31, 1992,
as amended and
restated as of
March 1, 1996
<PAGE> 1
AMENDED AND RESTATED DISTRIBUTION PLAN
FMB DIVERSIFIED EQUITY FUND
WHEREAS, FMB Funds, Inc. ("Company") is an open-end, management
investment company and is registered as such under the Investment Company Act of
1940, as amended ("Act"); and
WHEREAS, the Company adopted a Distribution Plan dated March 1, 1992
("Plan") pursuant to Rule 12b-1 under the Act on behalf of the Consumer Service
Class of the FMB Diversified Equity Fund ("Fund"), and such Plan was approved by
"vote of a majority of the outstanding voting securities" of the Fund's Consumer
Service Class; and
WHEREAS, the Board of Directors, including a majority of the Qualified
Directors (as defined below) has determined to amend and restate the Plan;
NOW THEREFORE, the Plan is hereby amended and restated on the following
terms and conditions:
Section 1. Pursuant to the Plan, the Fund may reimburse the Company's
distributor ("Distributor"), monthly (subject to a limit of 0.35% per annum of
the Fund's Consumer Service Class' average daily net assets), for costs and
expenses of the Distributor in connection with the distribution of Fund shares
of its Consumer Service Class. These costs and expenses include (i) costs of
advertising by radio, television, newspapers, magazines, brochures, sales
literature, direct mail or any other form of advertising, (ii) expenses of sales
employees or agents of the Distributor, including salary, commissions, travel
and related expenses, (iii) payments to broker-dealers and financial
institutions for services in connection with the distribution of shares of the
Fund's Consumer Service Class, including promotional incentives and fees
calculated with reference to the average daily net asset value of shares of the
Fund's Consumer Service Class held by shareholders who have a brokerage or other
service relationship with the broker-dealer or other institution receiving such
fees, (iv) costs of printing prospectuses and other materials to be given or
sent to prospective investors in the Fund's Consumer Service Class and (v) such
other similar costs and expenses as the Directors determine to be reasonably
calculated to result in the sale of shares of the Fund's Consumer Service Class.
Section 2. Unless earlier terminated in accordance with its terms, the
Plan will continue in effect for so long as the continuance is specifically
approved at least annually by vote of a majority of both (a) the Directors of
the Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 3. The Company shall provide to the Company's Board of
Directors and the Directors shall review, at least quarterly, a written report
of the amounts expended by the Company under the Plan and each related agreement
and the purposes for which such expenditures were made.
<PAGE> 2
2
Section 4. The Plan may be terminated at any time by vote of a
majority of the Qualified Directors or by vote of a majority of the outstanding
voting securities of the Fund's Consumer Service Class.
Section 5. All agreements related to the Plan shall be in writing and
shall be approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting called for
the purpose of voting on such approval. Any agreement related to the Plan shall
provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Qualified Directors or
by vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, on not more than 60 days' written
notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of
its "assignment" (as defined below).
Section 6. The Plan may not be amended to increase materially the
amount that may be expended by the Fund pursuant to the Plan without the
approval by a vote of a majority of the outstanding voting securities of the
Fund's Consumer Service Class, and no material amendment to the Plan shall be
made unless approved by vote of a majority of both (a) the Directors of the
Company and (b) the Qualified Directors, cast in person at a meeting (or
meetings) called for the purpose of voting on such approval.
Section 7. While the Plan is in effect, the selection and nomination
of each Director who is not an "interested person" (as defined below) of the
Company shall be committed to the discretion of the Directors who are not
interested persons.
Section 8. The Company shall preserve copies of the Plan, each related
agreement and each report made pursuant to Section 4 hereof, for a period of not
less than six years from the date of the Plan, such agreement or such report, as
the case may be, the first two years in an easily accessible place.
Section 9. As used in the Plan, (a) the terms "assignment,"
"interested person" and "vote of a majority of the outstanding voting
securities" shall have the respective meanings specified in the Act and the
rules and regulations thereunder,
subject to such exemption as may be granted by the Securities and Exchange
Commission, and (b) the term "Qualified Directors" shall mean the Directors of
the Company who are not interested persons of the Company and have no direct or
indirect financial interest in the operation of the Plan or in any agreements
related to the Plan.
Dated: March 31, 1992,
as amended and
restated as of
March 1, 1996
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Valerie T. Ambrose,
director of FMB Funds, Inc., a Maryland corporation (hereinafter called the
"Fund") does hereby constitute and appoint David G. Lee, Kathryn L. Stanton,
Kevin P. Robins and Todd Cipperman, and each of them, her true and lawful
attorneys and agents, with full power to act without the others, for her and in
her name, place and stead, in any and all capacities, to do any and all acts and
things, and execute in her name any and all instruments, which said attorneys
and agents may deem necessary or advisable in order to enable the Fund to comply
with the Investment Company Act of 1940, Securities Act of 1933, any
requirements of the Securities and Exchange Commission in respect thereof, and
any state securities laws, in connection with the registration under said Acts
of the aforesaid Fund and the offerings of shares by such Fund, including
specifically and without limitation power and authority to sign her name to any
and all Registration Statements to be filed with the Securities and Exchange
Commission under either of said Acts in respect to such Fund and shares, and any
amendments (including post-effective amendments) or applications for amendment
or supplements of or to such Registration Statements, and to file the same with
the Securities and Exchange Commission; and the undersigned does hereby ratify
and confirm all that said attorneys and agents, and each of them, shall do or
cause to be done by virtue hereof. Any one of said agents and attorneys shall
have, and may exercise, without the others, all the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has signed her name hereto as of
this 18th day of March, 1996.
/s/Valarie T. Ambrose
------------------------------------
Valerie T. Ambrose
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned, Michael R.
Mucciolo, director of FMB Funds, Inc., a Maryland corporation (hereinafter
called the "Fund"), does hereby constitute and appoint David G. Lee, Kathryn L.
Stanton, Kevin P. Robins and Todd Cipperman, and each of them, his true and
lawful attorneys and agents, with full power to act without the others, for him
and in his name, place and stead, in any and all capacities, to do any and all
acts and things, and execute in his name any and all instruments, which said
attorneys and agents may deem necessary or advisable in order to enable the Fund
to comply with the Investment Company Act of 1940, Securities Act of 1933, any
requirements of the Securities and Exchange Commission in respect thereof, and
any state securities laws, in connection with the registration under said Acts
of the aforesaid Fund and the offerings of shares by such Fund, including
specifically and without limitation power and authority to sign his name to any
and all Registration Statements to be filed with the Securities and Exchange
Commission under either of said Acts in respect to such Fund and shares, and any
amendments (including post-effective amendments) or applications for amendment
or supplements of or to such Registration Statements, and to file the same with
the Securities and Exchange Commission; and the undersigned does hereby ratify
and confirm all that said attorneys and agents, and each of them, shall do or
cause to be done by virtue hereof. Any one of said agents and attorneys shall
have, and may exercise, without the others, all the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
this 18th day of March, 1996.
/s/ Michael R. Mucciolo
------------------------------------
Michael R. Mucciolo
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned William K.
Anderson, director of FMB Funds, Inc., a Maryland corporation (hereinafter
called the "Fund"), does hereby constitute and appoint David G. Lee, Kathryn L.
Stanton, Kevin P. Robins and Todd Cipperman, and each of them, his true and
lawful attorneys and agents, with full power to act without the others, for him
and in his name, place and stead, in any and all capacities, to do any and all
acts and things, and execute in his name any and all instruments, which said
attorneys and agents may deem necessary or advisable in order to enable the Fund
to comply with the Investment Company Act of 1940, Securities Act of 1933, any
requirements of the Securities and Exchange Commission in respect thereof, and
any state securities laws, in connection with the registration under said Acts
of the aforesaid Fund and the offerings of shares by such Fund, including
specifically and without limitation power and authority to sign his name to any
and all Registration Statements to be filed with the Securities and Exchange
Commission under either of said Acts in respect to such Fund and shares, and any
amendments (including post-effective amendments) or applications for amendment
or supplements of or to such Registration Statements, and to file the same with
the Securities and Exchange Commission; and the undersigned does hereby ratify
and confirm all that said attorneys and agents, and each of them, shall do or
cause to be done by virtue hereof. Any one of said agents and attorneys shall
have, and may exercise, without the others, all the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
this 18th day of March, 1996.
/s/William K. Anderson
------------------------------------
William K. Anderson
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Timothy C.
Morawski, director of FMB Funds, Inc., a Maryland corporation (hereinafter
called the "Fund") does hereby constitute and appoint David G. Lee, Kathryn L.
Stanton, Kevin P. Robins and Todd Cipperman, and each of them, his true and
lawful attorneys and agents, with full power to act without the others, for him
and in his name, place and stead, in any and all capacities, to do any and all
acts and things, and execute in his name any and all instruments, which said
attorneys and agents may deem necessary or advisable in order to enable the Fund
to comply with the Investment Company Act of 1940, Securities Act of 1933, any
requirements of the Securities and Exchange Commission in respect thereof, and
any state securities laws, in connection with the registration under said Acts
of the aforesaid Fund and the offerings of shares by such Fund, including
specifically and without limitation power and authority to sign his name to any
and all Registration Statements to be filed with the Securities and Exchange
Commission under either of said Acts in respect to such Fund and shares, and any
amendments (including post-effective amendments) or applications for amendment
or supplements of or to such Registration Statements, and to file the same with
the Securities and Exchange Commission; and the undersigned does hereby ratify
and confirm all that said attorneys and agents, and each of them, shall do or
cause to be done by virtue hereof. Any one of said agents and attorneys shall
have, and may exercise, without the others, all the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has signed his name hereto as of
this 18th day of March, 1996.
/s/ Timothy C. Morawski
------------------------------------
Timothy C. Morawski
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> FMB MONEY MARKET FUND CONSUMER SERVICE CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 105,101
<INVESTMENTS-AT-VALUE> 101,101
<RECEIVABLES> 117
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,225
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 499
<TOTAL-LIABILITIES> 499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,727
<SHARES-COMMON-STOCK> 17,529,236
<SHARES-COMMON-PRIOR> 7,154,600
<ACCUMULATED-NII-CURRENT> 90
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 17,489
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,689
<OTHER-INCOME> 0
<EXPENSES-NET> 750
<NET-INVESTMENT-INCOME> 5,983
<REALIZED-GAINS-CURRENT> (88)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,850
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 555
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,067,014
<NUMBER-OF-SHARES-REDEEMED> (22,236,404)
<SHARES-REINVESTED> 544,025
<NET-CHANGE-IN-ASSETS> (5,728)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 396
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 750
<AVERAGE-NET-ASSETS> 10,801
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> FMB MONEY MARKET INSTITUTIONAL CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 105,101
<INVESTMENTS-AT-VALUE> 105,101
<RECEIVABLES> 117
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 105,225
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 449
<TOTAL-LIABILITIES> 449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,727
<SHARES-COMMON-STOCK> 87,195,506
<SHARES-COMMON-PRIOR> 103,300,756
<ACCUMULATED-NII-CURRENT> 90,145
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 87,238
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,689
<OTHER-INCOME> 0
<EXPENSES-NET> 750
<NET-INVESTMENT-INCOME> 5,938
<REALIZED-GAINS-CURRENT> (88)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,850
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,293)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 269,586,183
<NUMBER-OF-SHARES-REDEEMED> (286,105,170)
<SHARES-REINVESTED> 143,737
<NET-CHANGE-IN-ASSETS> (5,728)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 396
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 750
<AVERAGE-NET-ASSETS> 102,484
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> INTERMEDIATE GOVERNMENT INCOME CONSUMER SERVICE CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 118,804
<INVESTMENTS-AT-VALUE> 121,428
<RECEIVABLES> 1,520
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,955
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 699
<TOTAL-LIABILITIES> 699
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,522
<SHARES-COMMON-STOCK> 743,337
<SHARES-COMMON-PRIOR> 1,005,812
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,801)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,624
<NET-ASSETS> 7,610
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,396
<OTHER-INCOME> 0
<EXPENSES-NET> 954
<NET-INVESTMENT-INCOME> 7,442
<REALIZED-GAINS-CURRENT> (1,372)
<APPREC-INCREASE-CURRENT> 8,393
<NET-CHANGE-FROM-OPS> 14,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (555)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,551
<NUMBER-OF-SHARES-REDEEMED> (339,113)
<SHARES-REINVESTED> 43,087
<NET-CHANGE-IN-ASSETS> (2,911)
<ACCUMULATED-NII-PRIOR> 100
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 550
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 954
<AVERAGE-NET-ASSETS> 8,577
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> (0.61)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> FMB INTERMEDIATE GOVERNMENT INCOME FUND INSTITUTIONAL CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 118,804
<INVESTMENTS-AT-VALUE> 121,428
<RECEIVABLES> 1,520
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,955
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 699
<TOTAL-LIABILITIES> 699
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121,522
<SHARES-COMMON-STOCK> 11,198
<SHARES-COMMON-PRIOR> 11,949
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,801)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,624
<NET-ASSETS> 114,646
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,396
<OTHER-INCOME> 0
<EXPENSES-NET> 954
<NET-INVESTMENT-INCOME> 7,442
<REALIZED-GAINS-CURRENT> (1,372)
<APPREC-INCREASE-CURRENT> 8,393
<NET-CHANGE-FROM-OPS> 14,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,917)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,546,780
<NUMBER-OF-SHARES-REDEEMED> (4,297,423)
<SHARES-REINVESTED> 66
<NET-CHANGE-IN-ASSETS> (2,911)
<ACCUMULATED-NII-PRIOR> 100
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 550
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 954
<AVERAGE-NET-ASSETS> 113,577
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> 0.61
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> (0.61)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> FMB MICHIGAN TAX-FREE BOND FUND CONSUMER SERVICE CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 31,400
<INVESTMENTS-AT-VALUE> 32,733
<RECEIVABLES> 684
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,424
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105
<TOTAL-LIABILITIES> 105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,099
<SHARES-COMMON-STOCK> 1,169,923
<SHARES-COMMON-PRIOR> 1,228,786
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (115)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,333
<NET-ASSETS> 12,619
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,627
<OTHER-INCOME> 0
<EXPENSES-NET> 214
<NET-INVESTMENT-INCOME> 1,414
<REALIZED-GAINS-CURRENT> (12)
<APPREC-INCREASE-CURRENT> 2,368
<NET-CHANGE-FROM-OPS> 3,770
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (600)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 173,587
<NUMBER-OF-SHARES-REDEEMED> (280,866)
<SHARES-REINVESTED> 48,416
<NET-CHANGE-IN-ASSETS> 5,575
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 169
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 361
<AVERAGE-NET-ASSETS> 13,005
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.82
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.79
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> FMB MICHIGAN TAX-FREE BOND FUND INSTITUTIONAL CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 31,400
<INVESTMENTS-AT-VALUE> 32,733
<RECEIVABLES> 684
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,424
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<TABLE> <S> <C>
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<NAME> DIVERSIFIED EQUITY CONSUMER SERVICE CLASS
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<SERIES>
<NUMBER> 041
<NAME> FMB DIVERSIFIED EQUITY FUND INSTITUTIONAL CLASS
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<S> <C>
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